Pension Schemes Bill

Baroness Stedman-Scott Excerpts

Report stage
Monday 16th March 2026 Lords Chamber

Moved by

[Baroness Stedman-Scott]

9: After Clause 7, insert the following new Clause—
“Benchmarking of Local Government Pension Scheme liabilities(1) For each actuarial valuation relating to a scheme for local government workers which has pension funds, an administering authority must obtain and publish—(a) the primary valuation used for funding purposes, and(b) one or more benchmark valuations of scheme liabilities based on—(i) prevailing bulk annuity pricing, and(ii) a gilt-based discount rate.(2) The valuations published under subsection (1) must be published at the same time as the funding strategy statement, and alongside the employer contribution rates arising from the funding valuation.(3) Where the funding valuation is materially more prudent than the benchmark valuations, the administering authority must publish a statement explaining—(a) the risks being guarded against,(b) why those risks justify a higher degree of prudence than that reflected in insurer pricing, and(c) the impact on employer contribution rates.(4) The funding strategy statement must include appendices explaining the valuation assumptions, benchmarks, and their effect on contribution rates in a form that is reasonably accessible to a person who is not a qualified actuary.(5) The statement must be communicated to the relevant local authority and made publicly available.(6) The documents published under this section must be made available in a manner that enables meaningful consultation by scheme employers and scheme members.(7) In this section—“administering authority” has the same meaning as in Regulation 2 of the Local Government Pension Scheme Regulations 2013 (S.I. 2013/2356);“funding strategy statement” has the same meaning as in Regulation 58 of the Local Government Pension Scheme Regulations 2013 (S.I. 2013/2356).”Member's explanatory statement
This amendment requires Local Government Pension Scheme valuations to be benchmarked against insurer pricing and gilt-based discount rates, with explanations where significantly greater prudence is applied. It also requires those benchmarks, the funding strategy statement, and employer contribution rates to be published together, with accessible explanatory material to support meaningful consultation.

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[Baroness Stedman-Scott (Con)]

My Lords, I move Amendment 9 standing in the names of my noble friend Lord Younger of Leckie and myself. During the passage of this Bill, we on these Benches have had a great many discussions not only in this Chamber but with industry experts, scheme managers, employers and others who will be directly affected by the provisions before us. Those conversations have been extremely valuable and have revealed something that many of us have found increasingly concerning. We have been made aware that, in a number of cases across the Local Government Pension Scheme, employers are being asked to contribute very substantial sums into pension funds; these levels of contribution appear to go well beyond what would be required for those funds to be fully funded, even on a very prudent basis.

Of course, prudence is essential in pension funding, and no one in this House would dispute that. Pension promises stretch decades into the future, and it is right that those responsible for safeguarding them take a cautious and responsible approach when assessing liabilities and setting contribution rates. What we are seeing in some cases, however, appears to move beyond prudence into excessive prudence. When contribution requirements are set significantly above what would be necessary even under extremely cautious valuation assumptions, the consequences are that employers, local authorities, academies, housing associations and others are required to divert even greater sums of money into pension funds.

The money does not come from nowhere; it comes from taxpayers and from public budgets, which might otherwise be used to fund and support local services, improve communities, invest in schools, support vulnerable people and deliver the many things we all want councils and public bodies to be able to do. If those employers are being asked to contribute significantly more than is necessary to secure the pensions of their members, we have to ask whether the balance between prudence and proportionality has shifted too far. That is precisely the issue this amendment seeks to address.

Amendment 9 would introduce an important requirement for transparency, requiring Local Government Pension Scheme valuations to be benchmarked against two widely recognised measures: insurer pricing—specifically, bulk annuity pricing—and evaluation based on gilt discount rates. Those benchmarks would then be published alongside the scheme’s official funding valuation.

Crucially, where the scheme’s official valuation is materially more prudent than those benchmarks, the administrating authority would be required to publish a clear statement explaining three things: first, what risk the scheme was seeking to guard against; secondly, why those risks justified the high level of prudence being applied; and, thirdly, what the impact of that additional prudence would be on employer contribution rates. In other words, the amendment would introduce transparency around the actuarial assumptions being used; it would allow employers, scheme members and the wider public to see how prudence affects contribution cost; and it would give those who are paying into the scheme the ability to understand—and where appropriate, question—the basis on which those cost are being set.

This intention should not be controversial. Indeed, one might reasonably argue that it should be a basic feature of the system. Where decisions are being taken which require significant contributions from public bodies, there should be transparency about how those decisions are reached, there should be honesty about the assumptions being applied and those affected should have the information necessary to exercise agency and scrutiny.

What this amendment seeks to achieve is not to undermine prudence—quite the opposite. Prudence remains vital in pension funding. But prudence must be accompanied by accountability, and when additional prudence is applied, particularly where it carries significant cost implications, it should be clearly explained and justified. The fact that our amendment would require those benchmarks, the funding strategy statement and employer contribution rates to be published together, is another key point. It would allow stakeholders to see the full chain from market comparison to actuarial judgment to the costs ultimately borne by employers.

This amendment therefore strikes a sensible balance. It would preserve the independence of actuaries and the integrity of the valuation process, while ensuring that the consequences of those decisions are visible and understood. For employers, it would provide clarity; for scheme members, it would provide reassurance; and for taxpayers, it would ensure that the significant sums being directed into pension funds are subject to appropriate transparency. For those reasons, this amendment represents a constructive and proportionate improvement to the Bill. It asks only that, where high levels of prudence are applied, they are accompanied by explanation and openness. That seems to me an entirely reasonable expectation, and I will test the opinion of the House when it is called.

[Lord Fuller (Con)]

My Lords, I support Amendment 9 in the names of my noble friends on the Front Bench and place on record that there are some very good behaviours among the Local Government Pension Scheme administering authorities that already follow the path laid out in the amendment, which would then be placed on a statutory basis.

I would not want people to think that none of that best practice happens, or that the numbers are just plucked out of the air—that is not the way it is at all. The purpose is that all schemes reach expectations and assess their liabilities in aggregate, not just for each of the councils—most people without this House would think the LGPS is a scheme for councils—but all the other admitted bodies as well. As I said in the previous group, when I first joined the Norfolk scheme about 20 years ago, there were about 70 admitted bodies; there are now 500, so it is extraordinarily complicated. Nationally, on a whole-of-LGPS basis, there are 6,160 scheduled bodies, 3,639 admitted bodies, 478 designated bodies—I do not know what they are, but I think they might be with the Environment Agency—and 15,049 employers with active members.

The key thing, in support of my noble friend Lady Stedman-Scott, is that when we look at all these contribution rates, it is not just taking the scheme in aggregate; we have to drill down to all the particular liabilities for each employer in the scheme. I am now drifting into the complication we often hear so much about, which is used to obfuscate the scheme. What I really like about this amendment is that it stops people who know about the Local Government Pension Scheme from hiding behind that complexity and obfuscation. It will require members to publish in plain language how the numbers are arrived at and what this amendment seeks to achieve.

Again, to repeat some of my history, when I first joined the Norfolk scheme, which is a good example, it was 79% funded. We shovelled in cash like it was going out of fashion. Now, 20 years later, it is 130% funded. In the last three years it has gone up 25%. These big swings militate against stability and sustainability. Over the years there has been a pessimism bias, which has meant that council tax, councils and admitted bodies have put much more money into the scheme. Partly, there was groupthink from the regulators, which forced us down this path.

However, I want to provide reassurance. When you look at the assumptions that I have been involved in, over five triennial revaluations now, there is a fan of opportunities and scenarios that the actuaries run on the membership of the scheme, sponsoring employers, even the life expectancy of members calibrated by postcode. There are about a thousand different scenarios in the scheme that I have seen. Of course, one of those scenarios is a wipeout. We should not confuse a scenario with a likelihood. With the benefit of hindsight, I think what has happened is that the extreme cases have been taken and split down the middle, whereas if there was more clustering around the middle then we would not have had to put in so much. That is why the amendment looks in a much more focused way at the funding strategy statement. That way, we can take the true costs into account.

On seeing the noble Lord, Lord Davies, again, who is an actuary, I am reminded of an old actuaries’ joke I told in Grand Committee. I am going to repeat it, because it was a small audience then: “We’re all living longer and it’s getting worse”. Some of the assumptions have possibly overcooked life expectancy and undercooked the effects of Covid, and so forth. There is a balance to be struck between overoptimism on one hand and excessive prudence on the other. It is a complicated scheme, but the amendment works out a method by which we can communicate that texture in language that the man in the street can understand, so that taxpayers can be reassured that they are not being overtaxed and members can be reassured that, over the life of the tail liabilities of the whole scheme, they will be paid in full at the right moment. As I said on the previous group, the LGPS is the closest thing we have to a sovereign wealth fund and it is important that we do not take an excessive pessimism bias, as the story of the last 20 years has shown.

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[Lord Katz (Lab)]

I thank the noble Viscount, Lord Younger of Leckie, for the amendment, moved very ably by the noble Baroness, Lady Stedman-Scott. It seeks to improve the transparency of the assumptions and level of prudence applied in LGPS actuarial variations, including through the introduction of additional benchmarks.

The 2025 triennial valuation will conclude on 1 April, and at present we do not have a complete picture of its outcomes across the 87 different funds and more than 20,000 employers in the scheme. The amendment seeks to prescribe remedies before any diagnosis has been made or, indeed, any maladies have been fully understood.

Many of the matters raised will be covered by the Government Actuary’s Department report under Section 13 of the Public Service Pensions Act 2013. The report will assess whether employer contributions have been set at levels appropriate to ensure solvency and long-term cost efficiency, whether funds’ valuations comply with the regulations and the degree of consistency between them. Recommendations will then be taken forward by the Ministry of Housing, Communities and Local Government and the scheme advisory board.

Officials are already engaging with the Government Actuary’s Department, which is targeting a publication date of spring 2027 for its report and recommendations. Your Lordships’ House will be pleased to hear that this is earlier than previous valuations, which I hope demonstrates the seriousness with which we are taking the issues raised by noble Lords in Committee. The Government Actuary’s Department will engage widely with funds, actuaries and advisers to develop a comprehensive understanding of the 2025 valuation.

It is appropriate for different funds and their advisers to use different discount rates, reflecting variations in risk appetite, employer profile and investment mix. It is helpful to understand how these approaches compare across the sector. The Section 13 review uses benchmarks to place local valuations on a comparable footing and may, in the first instance, provide useful insight into funds’ decision-making. There is a delicate balance to be struck. Members’ benefits are guaranteed in statute, but funds must ensure that they hold sufficient resources to pay those benefits over the long term through investment income and contributions.

My noble friend Lord Davies is right in his assertion that actuaries advise and funds decide. I salute, in making these contributions, his forbearance in not arguing for the interests of the national union of actuaries, of which I am sure is a founder member—at least he ought to be, if it does not exist.

We heard a fair amount on prudence, as we did in Committee, from the noble Lord, Lord Fuller, using his experience. In a locally managed scheme, it is for funds to work with their actuarial advisers and employers to set a contribution rate that supports the long-term viability of employers and the fund. The Section 13 report prepared by the GAD will consider questions of prudence—that is, how the discount rate is set and how stability is applied to contribution rates. Were the Government to set correct valuation assumptions, they would risk undermining the principle that funds and expert actuarial advisers are responsible for ensuring the long-term sustainability.

A push for greater intervention at the valuation risks moving from a locally managed scheme to a centrally managed scheme. We heard much about that in the discussion on the previous group of amendments. The implications are real and far reaching, decreasing rather than increasing the role for locally elected representatives.

On transparency, the amendment would require additional detail on assumptions and benchmarks in the funding strategy statements and these to be communicated in a more user-friendly way. I believe we are broadly aligned on the value of valuation reports and supporting material, such as funding strategy statements, being easier to understand for the lay reader. There is already transparency in the process. Administering authorities should consult all employers in the fund on their funding strategy statement. This statement should outline how surpluses and deficits will be managed, outline the approach to contribution stability and summarise the main actuarial assumptions used at the valuation.

To respond to the noble Lord, Lord Fuller, the funding strategy statement is consulted on, and the SAB guidance already says that the purpose of the FSS is to establish a “clear and transparent” strategy that explains how liabilities will be met and

“how the fund balances the interests of different employers”.

We must not jump to conclusions about how the valuation has played out for every fund and employer. There are already examples of good practice, including meaningful employer consultation and capable pension committees with the confidence to interrogate their actuary’s advice to fully understand the proposed contribution rates.

In his evidence to the Committee on the Bill in the other place, Roger Phillips, chair of the LGPS advisory board, said about the treatment of surplus that

“we live in a very volatile situation, and circumstances can change. You have to be careful, because if you reduce contribution rates considerably, that is a great benefit at this moment in time, but if you then turn around and start to increase them again, that can be very difficult for all employers to deal with, including local government”.—[Official Report, Commons, Pension Schemes Bill Committee, 2/9/25; col. 41.]

Until the valuation has concluded, we cannot reach a definitive view on how the interpretation of regulations and guidance and the quality of employer consultation have shaped the results that will apply from 1 April. As part of their review, the Government will ask the Government Actuary’s Department to focus on methods for managing risk and reflecting the long-term funding objectives of the scheme including discount rates, application of stability mechanisms and buffers and the effectiveness of employer engagement. I have committed to additional work with the GAD on how discount rates and the application of stability mechanisms affect contribution rates and whether employer engagement processes are operating effectively.

Following the publication of the Section 13 report, the Ministry of Housing, Communities and Local Government will undertake a review of the regulations and guidance governing the triennial valuation ahead of the 2028 valuation. I appreciate that your Lordships’ House may wish for more immediate action, but we must ensure that we are in possession of the valuation results before we determine the right course of action. I therefore ask the noble Viscount, Lord Younger, or the noble Baroness, Lady Stedman-Scott, to withdraw the amendment.

[Baroness Stedman-Scott (Con)]

Your Lordships have got me.

[Noble Lords]

Hear, hear!

[Baroness Stedman-Scott (Con)]

I did not say it for that to happen—just to clarify matters.

I am grateful to all noble Lords who have contributed to this debate and thank the Minister for his response. It has become clear in our discussion that the issue this amendment raises is not simply a technical question about actuarial methodology or valuation frameworks; it is about the very real pressure being felt by employers across the Local Government Pension Scheme and the consequences of those pressures for local services and for the taxpayers who ultimately fund them. We remain concerned that this is not yet something that appears to be firmly on the Government’s radar, yet the evidence we have heard from employers, advisers and those operating within the system suggests that it is an issue that requires attention.

This is not something that we have plucked out of the air, made up or brought to the Chamber today based on a whim. It is from interviews and meetings that we have had with experts in the system who say that this needs looking at. We were told about one local government pension scheme that is 189% provided for. While we have to be careful, balance things and rely on the experts, that is just a bit out of kilter. Across the country, councils and other employers are facing extremely difficult financial circumstances. Many are asking for emergency support simply to maintain the services on which their communities depend. In that context, it cannot be right that questions about whether pension contributions are being set at excessively prudent levels are simply left to drift until the next review cycle arrives.

For those reasons, we believe this amendment addresses an issue that is real, immediate and important. It introduces transparency where transparency is needed, and it does so in a way that is constructive and proportionate. I therefore seek to test the opinion of the House.

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Much of the detail of how this is going to be implemented depends on regulations, so I have two questions for my noble friend the Minister. First—and I have to admit that it is quite difficult to interpret the Bill—will regulations under Section 10 be made under the affirmative procedure, and hence come before this House and the Commons? Secondly, will there be consultation on those regulations and when will that take place? To be honest, much of what we are asking for in these amendments could be included in regulations. I will certainly be spending time over the coming months and years making sure that the regulations reflect the fact that the Government have a commitment, in my mind, to ensure that members benefit from the release of surpluses as much as employers.

[Baroness Stedman-Scott (Con)]

My Lords, I will speak briefly to some of the amendments in this group. At the outset, I thank all noble Lords who have tabled amendments and contributed to the constructive discussions we have been able to have on these issues. While I will focus my remarks on some of the amendments, we understand the direction of travel intended across this group.

Taken together, these amendments largely seek to ensure that the process of releasing surplus funds from defined benefit schemes is carried out on the basis of sound professional advice, in close communication with scheme members and with their interests properly safeguarded. The group also includes a technical amendment from the Government, which tightens up the drafting of the Bill and which we are content to support.

Amendment 13 in the name of the noble Baroness, Lady Altmann, would introduce a formal decision-making safeguard before schemes even create the legal power to pay surpluses to employers. In practical terms, it would ensure that trustees have received and considered formal actuarial advice before making such a change to the rules of the scheme. That matters because altering the rules of a scheme to enable surplus extraction has potential implications for the long-term funding position of the scheme and for the security of members’ benefits.

Amendment 13 therefore performs two important functions. First, it seeks to ensure that trustees properly understand the impact that surplus distribution could have on scheme funding before rule changes are made. Secondly, it requires them to consider alternative approaches to dealing with surplus that may benefit members instead, such as running the scheme on, transferring to a superfund or securing benefits through annuities. In other words, it ensures that sound professional advice is formally incorporated into the process before it can be completed.

That process is then complemented by Amendment 15, which addresses the next stage of the decision. While Amendment 13 concerns the creation of the power, Amendment 15 would ensure that advice is taken when trustees decide whether to exercise that power and pay surpluses to the employer. Under this amendment, trustees would be required to obtain actuarial advice and to consider the risks and benefits of alternative approaches before distributing surplus. They would therefore need to evaluate options such as reducing or pausing contributions, running the scheme on, transferring to a superfund or buying out liabilities. Ensuring that these risks and alternatives are considered in sufficient depth is critical. It helps to make sure that trustees’ fiduciary duties remain at the centre of the process and that decisions about surplus are taken in a careful, balanced and professionally informed way.

Amendment 17 would retain the existing requirement that trustees must be satisfied that the exercise of the power to pay surplus is in the interest of scheme members. As noble Lords will know, that protection currently exists in the Pensions Act 1995, but the Bill as drafted would remove it. Retaining that test would represent a major governance safeguard. It ensures that trustees continue to place members’ interests at the heart of their decision-making when considering whether surplus should be returned to the employer. That seems to us both sensible and entirely legitimate. The Government should give serious consideration to adopting this change because members’ interests should always remain central to the operation of pension schemes.

The reforms proposed in the Bill potentially open a pathway for surplus to be released from defined benefit schemes. If that pathway is to command confidence, it must be underpinned by strong governance, professional advice and meaningful member engagement. The amendments in this group help to reinforce these principles. We welcome the opportunity we have had to debate and discuss these important issues.

[The Minister of State, Department for Work and Pensions (Baroness Sherlock) (Lab)]

My Lords, I am grateful to the noble Baroness, Lady Altmann, my noble friend Lord Davies and the noble Viscount, Lord Thurso, for introducing their amendments. During our various deliberations, many noble Lords have highlighted the fact that the level to which a DB scheme is funded is subject to volatility and to changes in the underpinning assumptions used to ensure that schemes remain able to meet the promised pensions. This is something we take seriously as we all want to ensure that the policy aim here can be achieved: for surplus funds to be used to benefit members and employers, but with the right protections so that every member’s pension can be paid.

As I have outlined previously, the DB funding code and the underpinning legislation require trustees to aim to maintain a strong funding position. Our changes preserve trustee discretion over surplus release. Crucially, trustees must receive actuarial certification that the scheme meets a prudent funding threshold, and members must be notified before surplus is released. Let us not forget that these changes are simply levelling the playing field, as some schemes can already release surplus.

Amendments 16 and 19 would both require a consultation to take place before surplus is released. I understand the wish of noble Lords for the voice of members to be heard when decisions are being taken about releasing surplus. We agree with that observation; that is precisely why the decision to release surplus remains in the hands of trustees, who are there to represent their members. Trustees will consider a range of scheme-specific circumstances, including the employer covenant and wider endgame planning, when discharging their duty to members. It is, however, entirely for trustees to decide whether they may seek broader views before taking a decision to release surplus. It is their decision, not that of the employer.

In our view, a legislative requirement to consult is not proportionate. The existing framework gives trustees scope to seek broader views as required, and the fact remains that, ultimately, trustees must act in the best interests of scheme beneficiaries when taking a decision to release surplus. Furthermore, under our changes, trustees will continue to be subject to a requirement to notify members in advance of any surplus release, maintaining this key protection for scheme members. I can assure my noble friend Lord Davies that we will be monitoring closely how schemes intend to use, and are using, these powers.

Amendment 17 seeks to retain the statutory requirement that trustees be satisfied that it is in the interests of members before agreeing to surplus release. We discussed this in some detail in Committee. Trustees already have a clear overarching duty to act in the interests of scheme beneficiaries. We have had clear feedback from industry-wide stakeholders, including trustees, who have welcomed the repeal of this statutory requirement. Existing legislation is perceived by trustees as a barrier to considering the release of surplus because they are not sure how this additional test is reconciled with their existing overarching duties. This could clearly lead to indecision on whether to release surplus, which may ultimately lead to members losing out. We are making this change to put it beyond doubt for trustees that they are not subject to any additional tests beyond their existing, clear duties of acting in the interests of scheme beneficiaries.

Amendments 14 and 18 cover the consideration of discretionary awards upon the release of surplus. I understand the concerns raised by scheme members whose pensions have not kept pace with inflation. But the Government do not think that these amendments would be helpful to trustees or members. These amendments address only a single element of the matters that trustees must consider when determining whether to release a surplus. In practice, trustees’ overarching duty to act in the interests of all beneficiaries requires them to weigh a broad range of criteria before deciding whether a surplus should be released and, if so, how members might appropriately benefit. This may include the award of discretionary increases but, by narrowing the scope of these considerations, the amendments would risk constraining trustees in the proper discharge of their responsibilities.

The noble Viscount highlighted some matters that we may return to when we discuss his Amendment 22. I will touch on them now—what happens in circumstances where there appears to be a decent surplus and trustees may be minded but employers are reluctant—but, if it is okay with the noble Viscount, I will come back to that in the debate on his Amendment 22 as it is probably more closely focused on that.

The Government therefore believe that it is important that trustees remain in the driving seat. They are best placed to understand the individual circumstance of their scheme, its characteristics and history, and to decide how members may benefit from the release of surplus. By extending the power to return surplus to more trustees, we are levelling that playing field, with strong safeguards in place to protect member benefits. Trustees will be in a better position to negotiate member improvements in return for agreeing to release surplus.

There is clearly an appetite out there for trustees to enable members to benefit from this. Recent industry research shows that over 40% of employers intend to share DB surplus with members. We are confident that there is an appetite. We need to be careful not to create so many new restrictions that the policy aim of allowing more trustees to share surplus is not achieved, because that would prevent surplus delivering real value not just to employers but to members and the wider economy.

I turn to Amendments 13 and 15 in the name of the noble Baroness, Lady Altmann. Amendment 15 would require regulations to include a condition that trustees receive and consider actuarial advice on scheme funding. Amendment 13 would create a legislative requirement for trustees to commission actuarial advice on future benefits and alternative approaches to surplus release before modifying a scheme to allow for payment of surplus to the employer. I am not going to revisit our discussion on TAS 300, which is a particularly delightful memory from Committee, but I understand the concerns raised by the noble Baroness about trustees having appropriate advice to be able to make an informed decision about their endgame choices and whether to release surplus. Trustees will be required to take into account the scheme’s long-term funding objective when making decisions on surplus. This will include the factors that are listed in these amendments. Under the funding code, trustees are already required to set out their funding and investment strategy, describing how they intend to meet members’ benefits over the long term—in other words, their long-term objective. They will already be seeking appropriate advice before determining the long-term objective for their scheme. That objective is reviewed in line with each triennial valuation at a minimum.

Putting in place additional legislative steps that require trustees to commission and receive actuarial advice before releasing surplus could result in additional unnecessary bureaucracy. Hardwiring specific legislative considerations that trustees must take into account will remove their flexibility to gather the most appropriate advice for individual schemes. The Pensions Regulator—TPR—has set out guidance for schemes considering their long-term objective and options, including buyout, superfunds and run-on, which sets out clear expectations of trustees. In particular, the guidance says that trustees

“should regularly review the best way to deliver members’ promised benefits”.

It is not the responsibility of the FRC; it is for TPR to set out the requirements on trustees and monitor them.

Pension Schemes Bill

Baroness Stedman-Scott Excerpts

Report stage
Monday 16th March 2026 Lords Chamber

[Lord Davies of Brixton (Lab)]

I have three points. First, I profoundly disagree with the noble Lord, Lord Lucas. To pin the blame just on politicians lets everyone else off scot-free. It is more like Murder on the Orient Express—everyone had a hand. My particular favourite is the accountants, who had a big hand; the way they defined accounting for pension costs was pernicious. Let us not blame just the politicians.

Secondly, one cannot not be in favour of value for money. Obviously, we are all in favour of people getting value for money from their pension schemes. However, I think the Government underestimate the difficulty of providing something useful. As the noble Baroness, Lady Altmann, pointed out, there are more than two or three factors to be taken into account. It is particularly difficult when one starts including prospective factors—how are these to be judged? It is very difficult, and it is not just the factors. The pension holders’ circumstances vary so widely. How can there be a simple, straightforward way of assessing whether someone has had value for money when their needs are so different from those of other people who are saving for their pension?

Thirdly, I apologise for not being present in the Chamber to support the amendment in the name of the noble Viscount, Lord Thurso, in the previous group. I realise I am cheating here, but I was elsewhere. I had not realised that one of the groups had disappeared; otherwise, I would have been here and supported his amendment.

[Baroness Stedman-Scott (Con)]

My Lords, I begin by thanking the noble Baroness, Lady Altmann, for her opening remarks, which set the scene effectively on an important part of the Bill. She has done so at the close of what has been a long first day on Report—longer than we would have thought. She has once again brought clarity to a set of issues that are central to the operation of the reforms before us.

The amendments in this group are, in large part, concerned with ensuring that the value-for-money framework works well—both in how it is constructed in legislation and how it is communicated to and understood by those who will ultimately be operating under it. If this framework is to achieve its objective of improving outcomes for savers, it must be both robust in its design and clear in its application.

Amendment 24, in the names of the noble Baronesses, Lady Altmann and Lady Bowles, is both welcome and important. Throughout our discussions today and, indeed, in Committee, we have spoken a great deal about fiduciary duty: the principle that those responsible for managing pension schemes must act in the best interests of their members. Amendment 24 would help ensure that this vital principle is properly reflected within the value-for-money framework. It would require the regulations underpinning the framework to include explicit criteria relating to the quality of service provided to members. It would include matters such as the accuracy of recorded contributions; the reliability of scheme data; the efficiency of administration; the clarity of communication; the provision of guidance and education for members; and the support available to vulnerable members. Thus it recognises that value for money in pensions is a question not simply of investment performance and cost but of how effectively schemes serve the people whose savings they are entrusted to manage.

Amendment 25 has a complementary effect of strengthening transparency. It would require the value-for-money framework to provide separate assessment and reporting for each asset type in which a scheme invests. Rather than relying on a single aggregated measure of performance, schemes would need to report performance by asset class; for example, equities, bonds or infrastructure. This would allow for a clearer and more granular understanding of how investment strategies are performing, and therefore enhance transparency and accountability.

We also welcome the amendments in the name of the noble Baroness, Lady Altmann, which seek to ensure that the language used within the value-for-money framework is both intelligible and meaningful. The framework can succeed only if it is understood by those who are subject to it and by those whose savings it is designed to protect. Replacing more technical or opaque terminology with clearer expressions, such as “good value” and “poor value”, may seem a small change, but it is a practical one that helps ensure that the framework communicates effectively with members and the wider public.

Amendment 32 addresses another important issue: the practical realities facing pension schemes as they adapt to a rapidly changing regulatory landscape. This amendment would ensure that schemes are given time to improve before facing additional regulatory obligations. We have heard considerable concern throughout our debates about the sequencing of reforms in the Bill. Funds are being asked to do a great deal at once and to respond to a system that is evolving significantly under these provisions. Allowing a longer period before additional reporting requirements are triggered therefore seems both sensible and pragmatic. If schemes are to improve performance, they must first be given the time and space to adjust.

Finally, I turn to Amendment 44 in my name and that of my noble friend Lord Younger, which would require the Secretary of State to establish the value-for-money framework within 12 months of the Act being passed. This again speaks to the issue of sequencing: those who operate the system need clarity about the framework within which they are expected to operate. Providing that framework in a timely manner gives funds the greatest possible opportunity to understand its requirements and prepare for implementation. That, in turn, makes compliance more achievable and the reforms themselves more effective.

I thank the Minister for the technical amendments in this group. These drafting corrections help to ensure that the framework is expressed clearly and consistently in legislation, and we welcome that work. Taken together, the amendments before us seek to ensure that the value-for-money framework is clear, transparent and workable. If we are to ask pension schemes to operate within a new regulatory structure, it is only right that we ensure that structure is robust in its design and comprehensible in its operation. These amendments help us to move in that direction.

Universal Credit (Removal of Two Child Limit) Bill

Baroness Stedman-Scott Excerpts

2nd reading & Committee negatived & 3rd reading
Thursday 12th March 2026 Lords Chamber

[Baroness Stedman-Scott (Con)]

My Lords, I too am pleased to contribute to this important debate and look forward to the maiden speeches of the noble Baronesses, Lady Antrobus and Lady Teather, and the noble Lord Walker of Broxton. We welcome these wonderful people to our House and look forward to their contributions.

I feel I must set the scene and set it out very clearly. I say from the outset that we on the Opposition Benches do not support this Bill; in fact, we oppose it. That does not mean in any way that we do not care about children and families—quite the contrary. We believe there are other ways to support them that mean that money can be used differently to achieve the objective of improving their lives. I state publicly that I respect the consistency and tenacity of the Minister and, indeed, the noble Baroness, Lady Lister, in their campaigning in this area. We respect it. We may not agree with it, but we give credit where it is due.

We are far from alone in opposing the Bill. On this question, we stand with a clear majority of the British public. Polling consistently shows that more than 60% of people in this country support retaining the two-child benefit cap, with that support stretching across voters of all major political parties. What this debate increasingly appears to be about is not responsible public policy but political party management. As events over the past year have made clear, this measure is not being brought forward because the public have demanded it. Indeed, they are clearly opposed to it. We should all pause and consider why hard-working taxpayers are being asked to shoulder the financial consequences of the Government’s inability to manage their parliamentary party. That is not responsible government; it is a deeply troubling response from the Government to unrest.

Many across this Chamber will have their own principles and reasons for opposing this policy, but I begin with a simple illustration of what this policy and this debate mean in practice. Let us take the London Borough of Hackney. There, 29% of children live in households affected by the two-child limit without an exemption—the highest proportion anywhere in the country. As of August last year, there were 92 households in Hackney on universal credit with five or more children where the youngest child was born after the 2017 cut-off date. Unless they qualify for one of the limited exemptions, those households fall within the scope of the two-child limit. In other words, they already receive less than the maximum universal credit they would otherwise be entitled to. Yet even with the cap in place, these households receive on average £5,152 per month in universal credit. That is more than the take-home pay of someone earning around £88,000 a year. Across the country, the welfare bill for five-child households within the scope of the cap is already around £720 million per year. That is with the two-child limit still in place.

Set that against the reality faced by many working families. In Hackney and communities across the country, there are parents in work earning far less than that level of take-home pay who would love nothing more than to have a third child. But they sit down at the kitchen table, look at the household finances and make the heartbreaking decision that they simply cannot afford it. At the very same time, their taxes are funding households down the road who receive an income from universal credit that, in effect, exceeds their own. If this cap is removed, those households will not face the same choices about how many children they can afford.

I ask the Minister a simple question: how can that possibly be fair? How can it be right that working people supporting our economy and paying the taxes that fund the system must carefully limit the size of their own families while being asked to fund a system in which those not in work face no such constraint? That is the fundamental question of fairness at the heart of this debate, and it is why a clear majority of the public vehemently support the cap.

There is a wider point about economic development. More than this, what separates us on these Benches from the Minister and her Back Benches is our view that a handout is not the same as a hand up. The evidence is clear that the most effective way to tackle poverty is to provide people with the means and the incentives to provide for themselves. The single biggest factor in a child’s life chances is whether parents work, and removing the cap reduces the incentives to work altogether. That is clearly not a route out of poverty. Of course support should be targeted at those who need it—we have no argument with that—but it should not create a model where households on benefits are rewarded in a way no working family ever would be. That undermines both fairness and the incentive to work. As I have said, work is the only meaningful way that we will solve the problem of child poverty in the medium and long term.

When the incentive in place is to get more on benefits than working, why would you go to work? I am concerned by the view expressed by Labour Back-Benchers and the Government that increasing the generosity of the welfare offer in some way solves the issue of poverty. This approach does nothing but provide a sticking plaster to mask the fact that a dramatically increasing number of people rely solely on the state for their subsistence. This comes at a major and increasing cost to those who work and contribute, as the Spring Statement disturbingly underscored when it revealed that welfare spending will rise by 5.8% this year to an absolutely staggering £330 billion—around 11% of GDP.

My party has been clear. We would reinstate the two-child cap. Only last week my right honourable friend, Kemi Badenoch, the leader of our party, set out why. The savings from this policy could be redirected toward one of the more fundamental responsibilities of any Government—the protection and defence of the realm. Again, I stress that it does not mean that we do not care about children and families, but those savings would allow the recruitment of 20,000 additional soldiers and fund the accommodation, equipment and support they need to do their jobs properly at a time when the demands on our Armed Forces are growing and the world is becoming more uncertain. That is a central priority.

After the extraordinary spectacle of recent weeks, when the world has seen the Government unable and unwilling to defend British sovereign territory, the case for properly funding our Armed Forces has become more urgent than ever. Our defence should not be an afterthought. It should be the first duty of the state.

That is why it is so troubling that money that could be strengthening our national defence is instead being spent to manage the Government’s internal policies and politics. The country is being asked to foot the bill not because the policy case has been won but because the Government and the Chancellor have chosen not to pursue the welfare reforms they themselves once supported because they are too weak to get them past their own MPs. Do His Majesty’s Government have any plans to review the welfare state and to change it to a system that incentivises people to work, rather than live permanently on benefits? The defence of the nation should always come before the management of the governing party but, unfortunately, the policy we are discussing today is a manifestation of just that.

Ultimately, this debate comes down to three simple principles: fairness, responsibility and the Government’s priorities. It is about fairness, because it cannot be right that working families who get up every day, pay their taxes and carefully weigh what they can and cannot afford for their own children, are asked to fund a system in which those same choices do not apply. A welfare system that loses sight of that basic sense of fairness will quickly lose the confidence of the people who sustain it. It is about responsibility, because tackling poverty cannot mean simply writing even larger checks from the state. Real and lasting progress comes from helping people into work, strengthening incentives and ensuring that welfare is a safety net, not a substitute for independence. A system that blurs that distinction ultimately fails the very people it claims to help. It is about priorities, because every £1 spent by the state is a £1 taken from taxpayers and other priorities. At a time of enormous pressure on the public finances and growing threats in the world around us, the Government must be honest about where those resources should go.

This Bill fails on all three counts. It weakens fairness, it risks entrenching dependency rather than tackling its causes and it diverts scarce resources away from the fundamental duties of government. For those reasons, and in the interest of fairness and sound policy, these Benches cannot support the Bill. We urge the Government to keep the cap; it is what the country wants and what the country needs. I know the Benches opposite will not agree with me one little bit—I am under no illusions about that. I remind the whole House that you cannot make a poor man rich by making a rich man poor and you cannot help the wage earner by punishing the wage payer.

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[Baroness Sherlock (Lab)]

Indeed, and that probation officer clearly did a very good job: look where the noble Lord has ended up. Would that they were all that successful. I suppose that that is quite a high bar at which to set them, but I commend it. That is a really great point, and I am now violently agreeing with the noble Lord; but I will move on.

I want the social security system to do its job, and for most people its job is to support them into work, and in work, and to develop them in work. That is very much what this Government are seeking to do.

One of the challenges with universal credit is about assumptions. It was designed to move people into and out of work—to work in and out of work—and when it works it does so very well. All we are doing is making sure that the system works even better than it does. But the assumption that this Government are doing the wrong thing by spending money on tackling child poverty is fundamentally mistaken. My noble friend Lord Walker talked about the need to make sure we tackle NEETs, for example. We have one in eight of our young people not in employment, education or training. They did not start at 16.

[Baroness Stedman-Scott (Con)]

Will the Minister give way?

[Baroness Sherlock (Lab)]

Okay; it is going to be a long day.

[Baroness Stedman-Scott (Con)]

We are not saying that the Government should not spend money. It is about what you spend it on, and how it is spent to get the best outcome from what you are trying to do.

[Baroness Sherlock (Lab)]

My Lords, I understand that, but I have looked at what the last Government spent the money on and at the results, and I do not like them, so we are going to do something different.

My simple view is that if we will the end of tackling child poverty, we have to will the means. We believe that removing this barrier is fundamental. Those young people who were NEETs at 16 did not start at 16: they started without the opportunities, without the education, and without the start in life they should have had. The evidence shows quite clearly that children who grow up in poverty are likely to have poorer mental health, fewer opportunities and less chance to do all those things we want them to do. What we are doing is enabling those people to have opportunities, giving them the start they need. If we can get that in place, the whole country benefits. Instead of supporting people not to work, we are giving them the chance to flourish as individuals and to make the contribution to our society that they will not get the chance to make otherwise.

Before I get myself into any more flights of rhetoric, I should answer some of the questions that have been asked. My noble friend Lady Lister asked about council tax reduction. I think she knows this, but just for the record, local councils are of course responsible for designing and reviewing their own council tax reduction schemes. My department has been working with the MHCLG to communicate the change to local authorities, and they have been encouraged to consider the impact of their schemes in the light of the removal of the two-child limit. In 2029-30 an estimated 560,000 families will see an increase in their universal credit award, with these families gaining, on average, £440 a month. The impact of transitional protection is included in the impact assessment, but not on the numbers of households.

The benefit cap was raised by my noble friend Lady Lister, and by the noble Baronesses, Lady Teather and Lady Bennett, and by my noble friend Lord Davies and a few others. This Government want to preserve the fundamental principle that work is the best route out of poverty. We believe that leaving the overall benefit cap in place encourages personal responsibility while maintaining the incentive to work. Where possible, it is in the best interests of children to be in working households. Being in work substantially reduces the chance of poverty: the poverty rate of children living in households where all adults are in work is 17%, compared to 65% for children who live in households where no adults work. We will continue to protect the most vulnerable—those who are unable to work because of a disability or a caring responsibility are protected and exempted from that.

The noble Baroness, Lady Bennett, asked about numbers. When I answered her Written Question, the impact assessment had not been published at that point. I can say that among households in scope to gain from the removal of the two-child limit in 2029-2030, approximately 50,000 are estimated to be capped before the policy change, and a further 10,000 households will be capped afterwards. In contrast, 550,000 households in Great Britain will gain in full from the removal of the two-child limit in 2029-30, as will an estimated 2 million children in the United Kingdom.

The noble Baroness, Lady Janke, and my noble friend Lady Shah raised the impact of poverty on children and schools—

Pension Schemes: Ministerial Powers

Baroness Stedman-Scott Excerpts

Wednesday 11th March 2026 Lords Chamber

[Baroness Sherlock (Lab)]

As the noble Baroness well knows, we have been discussing this matter for some weeks now in Committee and will be discussing it again on Monday, when we come to the matter on Report. Let me give her a brief answer to the points she has made. I know that she agrees with the Government’s objectives, because she herself has advocated previously—indeed, in Committee—that we make pension tax relief contingent on 25% of new investment being allocated to UK assets. I know she wants the same thing that we do.

To be really clear, the power is being taken as a reserve power to back the voluntary, industry-led Mansion House Accord, which said that by 2030, 17 of the largest pension schemes in the private pensions sector would be investing 10% of their relevant default funds into private investment, with half of that in the UK. The expectation is that having done that, the industry will do it. The reason for taking a reserve power is, as the noble Baroness knows very well, that the challenge in the UK is too often schemes compete on cost and not on value. There is always a risk that for some small competitive advantage, somebody may want to try to separate off from that, so the reserve power is signalling clearly to the industry: this is the direction of travel, so let us stay with it. All we are doing is backstopping that.

[Baroness Stedman-Scott (Con)]

My Lords, the Government say that this power is merely a backstop to the Mansion House Accord but that is a gross misrepresentation. The Pension Schemes Bill goes far beyond that and gives Ministers sweeping authority to mandate pension investments to whatever level they choose. The state should not be directing the allocation of private pension assets. Those decisions must be taken by trustees in the best interests of their members, not by Labour Ministers pursuing political objectives. This policy risks undermining confidence in the entire auto-enrolment system, which was built on the promise that people’s savings would be invested in their interests, not the Government’s. I ask the Minister a simple question: will the Government remove this dangerous and unjustified power from the Bill?

[Baroness Sherlock (Lab)]

There is a short and a long answer. The short answer is no. The long answer is that the Government have made it abundantly clear, because I have done it myself many times in Committee, what the purpose of the reserve power is: to backstop the Mansion House and trust commitments. My honourable friend the Pensions Minister and I have made it clear—he said it again this morning at a pensions conference—that we would make absolutely sure that the Government’s intention simply to backstop those agreements was there in the Bill. That is what the legislation is for, but I need to correct something in particular. This power does not direct schemes into specific assets or projects. What it does is set a broad framework aligned with the industry’s own voluntary commitments under the Mansion House Accord. Trustees retain full discretion over individual investment selection and the balance between asset classes. The role of a pension trustee has always been to exercise judgment, subject to constraints, and nothing in these provisions changes that.

Access to Work Fund

Baroness Stedman-Scott Excerpts

Thursday 5th March 2026 Lords Chamber

[Baroness Stedman-Scott (Con)]

My Lords, the Minister and I suffer from the same condition: an obsession with getting people into work and keeping them there. I hope the whole House shares an obsession with the same outcome. Nothing makes my heart sing more than knowing how many people we get into work, how many stay in work—particularly after a year—how much a job costs and how we can make sure we measure what we are doing. How does the department keep these outcomes under review and how does it ensure that expenditure in this area is demonstrably helping people enter and stay in work?

[Baroness Sherlock (Lab)]

I commend the noble Baroness for the really interesting and innovative work she has done in the past, and for her commitment to this area. It is always a pleasure to debate these issues with her. On value for money and the results of Access to Work, she will remember from her time in the department that the previous Government tried to look at how you assess the impact of this scheme, only to find that it is very difficult, because you do not have a counterfactual: you cannot have a control group who get no help at all and struggle on their own, and compare to see how the two groups are doing. The NAO flagged these issues to the department and we are very aware of them. We are looking all the time at how we reform the scheme in a way that helps individuals, demonstrates additional value for money and is not a substitute for what employers should be doing, but which none the less is not so bureaucratic that you cannot get the money you need. To reassure her, all those things are being taken into account in the review process.

Mesothelioma Lump Sum Payments (Conditions and Amounts) (Amendment) Regulations 2026

Baroness Stedman-Scott Excerpts

Monday 2nd March 2026 Grand Committee

[Baroness Donaghy (Lab)]

My Lords, I will be brief. This is somewhat of an anniversary for the noble Lord, Lord Jones, and me, albeit a very sad one. I think the noble Baronesses, Lady Sherlock and Lady Stedman-Scott, would be quite surprised if we did not turn up for it. I speak as a chair, for many years, of the mesothelioma oversight committee. I could recite the industries affected, but I will leave that to the Minister.

The only thing I want to add to what the noble Lord, Lord Jones, said, is to thank the noble Baroness, Lady Stedman-Scott, as well as the Minister. I remind the Committee that the noble Lord, Lord Freud, introduced the legislation, for which thanks are due. It is important to remember these things.

The average age of those diagnosed is 75 and over, for whom the payment sums, which look very healthy at the start of the table, are less than £20,000. If there is any reason for keeping these figures under review, rather than being automatic, it is the fact that they do not look very good any more. It would be much appreciated if something could be done about that.

[Baroness Stedman-Scott (Con)]

My Lords, I think this is about the fifth anniversary of me taking part in these uprating instruments. This year, for me, they are completely different.

When I started my charity, Tomorrow’s People, more than 35 years ago, the first lady I employed was absolutely outstanding. Last year, I received a letter from a lawyer, saying that somebody who had been employed by my charity had contracted mesothelioma and they wanted to talk to me about the buildings that we occupied. I got in touch with them immediately and said, “Yes, of course I will help. Could you tell me who it is?” They went back to the person and then came back to me to say that it was this lady, the very first one I had ever employed, who had got mesothelioma. It suddenly hit home that this was a disease that affected somebody whom I rated highly and had great respect for. She came here to see me for lunch and told me her story, and I have kept in touch with her. I expect—and hope—that she is watching what we are doing today. I want to say that it made the whole thing pretty personal.

I am pleased to say that we on these Benches support these two sets of draft regulations, which provide for a 3.8% uprating of the lump sum payments available under the mesothelioma and pneumoconiosis compensation schemes from April this year. These schemes remain a vital, no-fault safety net for those suffering from some of the most devastating industrial diseases. Mesothelioma and pneumoconiosis are cruel conditions, often emerging decades after exposure and, in many cases, at a point when it is no longer possible to pursue former employers through the courts. The provision allowing dependants to claim when a sufferer dies before making an application reflects the harsh reality and rapid progression of these illnesses.

Maintaining an inflation link is essential if these payments are to retain their real-terms value, particularly given the debilitating nature of these diseases and the financial strain that they place on families. The long latency period associated with asbestos-related illnesses makes statutory compensation schemes not merely desirable but necessary. Although there is no statutory duty to uprate these payments each year, successive Governments have taken the view that that is the proper course. I agree. Uprating in line with inflation is the least that justice requires, ensuring that compensation continues to provide meaningful recognition and practical support.

These instruments may be technical in form, but they are significant in human terms. For those confronting terminal illness as a consequence of historic workplace exposure, this support represents fairness, dignity and the acknowledgement of a debt long owed. We on these Benches therefore fully support the regulations before the Committee.

[Baroness Sherlock (Lab)]

My Lords, I am grateful to all noble Lords for their helpful contributions to this debate. I confess that I would miss it if we did not gather once a year to talk about the impact of this, but I will come on to that in a moment. It is always a moment, and I appreciate that, from around the House, we have all come here to demonstrate the strength of cross-party support for these two lump sum schemes.

It was good of my noble friend Lady Donaghy to acknowledge the work of the noble Lord, Lord Freud, and others, as well as that of my late and much-lamented noble friend Lord McKenzie, who did so much work in this space for many years. My noble friend Lord Jones showed very well that, when it comes to anything in this space, we are standing on the shoulders of giants. He talked about the history of all the great Labour figures who knew that they came to Parliament to speak up for those who did not have a voice and those who had suffered at the hands of people who, in many cases, should have known better but, in some cases, did not know better. We learn as time goes on.

I remember my noble friend Lord Mann from a very long time ago as well. It is incredibly moving to think that his very first piece of casework was somebody who went on to die that day from one of these terrible diseases. As noble Lords will know, I am a priest in the Church of England, so I know what it is to be with people when they are close to death. It is a privilege as well as a challenge. To be able to take that experience and use it to advocate for others is what so many people go into politics for, so I commend my noble friend for being here to tell that story and to speak up for those who are not here and are unable to do the same.

Let me pick up on my noble friend’s point about process. This is a debate that we have regularly. Most years, somebody will suggest that we should put this into the annual uprating and then somebody else will say that we should not and give reasons why. On the reasons given today, the thoughts on the opportunity to debate these regulations and the point made by my noble friend Lady Donaghy about wanting to keep the amounts under review are interesting.

One thing I should say to my noble friend Lord Mann is that, if these payments were uprated automatically in the way that, for example, social security benefits are—these are almost always affirmative—they would still require affirmative regulations that have to be debated in Parliament. They could theoretically be rolled into a general social security operating order, but that would do the exact opposite of what my noble friend wants by putting them in with benefits rather than separating them out from benefits. Today is an opportunity for us to be here and to discuss this; either way, it would not make a difference to the claimants.

My noble friend made a wider point about understanding that these are not benefits. Of course, these schemes are quite different. Technically, they come out of what is known as departmental expenditure, rather than, like most benefits, annual expenditure. They are not benefits; they are compensation for something that people suffered but should not have done. My department offers a range of other financial support to people, including the main industrial injuries disablement benefit. Many people who get these diseases may have other costs as a result of their disability and may get things such as personal independence payments, the attendance allowance or other state benefits to cover their income replacement needs. The department wants to provide all the appropriate support for people who really cannot work as a result of injuries, while wanting to make sure that those who are economically inactive or unemployed are supported to get back to work, where they should be. We can help them to do that, and we should be expecting them to do that.

The noble Lord, Lord Palmer, asked about the amount. One of the reasons it is labelled as a percentage is that the amount any individual gets depends on the scheme and the age of sufferer at the point of death, so the amounts that people are paid are different. I can tell him the average amounts: under the 1979 Act scheme, the average award to sufferers was £14,700 and to dependants it was £11,500. Under the 2008 scheme, the average award to sufferers was £26,600 and £8,500 to dependants. That would have included a range of figures for individuals.

My noble friend Lord Jones asked me for the number of awards. For the record, under the 1979 scheme, there were 2,540, and under the 2008 scheme, there were 610. Those statistics are from the latest financial year for which figures are available.

On the point made by my noble friend Lady Donaghy, I recognise that there are many who want those amounts to be larger. All I can say is that the Government keep this under review and will continue to do so.

In terms of the comment from the noble Baroness, Lady Stedman-Scott, there is nothing that brings this home like knowing somebody affected by this, and being asked about the building in which, presumably, she also worked as well as the person she hired.

My noble friend Lord Mann talked about asbestos gloves. Some noble Lords will remember, and I remember, some of the horrific stories that have been told. I remember one of my noble friends talking about what happened onboard ships, where ratings were basically playing with balls of asbestos. There were stories of people trundling trollies down corridors of hospitals, porters and all kinds of things. There were stories about schools and all kinds of public buildings. There are people who are suffering simply for doing their jobs. Most of these jobs were in public service, serving the community and caring. The very least we can do is to make sure that they get appropriate levels of support.

I think that I have addressed most of the specific questions I was asked. I just want to finish on a positive note. I mentioned the work of the HSE in relation to awareness of exposure, but I would like to put some of the work that has been done elsewhere in government on the record. Quite often we discuss research, and we know how important research is in supporting individuals with these diseases. It is still the case that the life expectancy is incredibly low, especially by the time that people are diagnosed with diffuse mesothelioma. DHSC invests over £1.6 billion each year on research through the National Institute for Health and Care Research, and cancer is a major area of NIHR spending at £141.6 million in 2024-25.

Respiratory disease is a clinical priority within the NHS long-term plan. The aim is to improve outcomes for people who have these respiratory diseases through early diagnosis and increased access to treatment. NHS England has established 13 respiratory clinical networks across the country. These have been vital in providing clinical leadership for respiratory services and supporting services in primary care. Indeed, that continued investment in cancer research and support for people with respiratory diseases is key to reducing the numbers of families affected in the future and providing better support following a diagnosis.

I think that I have addressed all the questions that were asked. Once again, it is always a privilege to participate in this debate. I acknowledge the position of those who suffer from these terrible diseases and their families. The least we can do is carry on providing support. In light of that, I beg to move.

Pension Schemes Bill

Baroness Stedman-Scott Excerpts

Committee stage
Monday 23rd February 2026 Grand Committee

That is the contribution I want to make. I do not believe there is a problem with the law; the problem is helping trustees and, in my respectful view, we ought to get on with it now.

[Baroness Stedman-Scott (Con)]

My Lords, I am grateful to all noble Lords who have contributed to this debate. I recognise that these amendments are brought forward in a spirit of good will and genuine concern, and I thank all noble Lords for that. I turn first to Amendment 212 in the name of the noble Lord, Lord Sharkey, and to the amendment tabled by my noble friend Lady Coffey.

It is important that we approach this discussion with clarity about the framework that already governs occupational pension schemes. From my understanding, there is already a substantial and detailed regulatory architecture in place. First, schemes are required to maintain a statement of investment principles since the reforms introduced in 2019 and 2020. That statement must explicitly address financially material considerations, including environmental, social and governance factors. It must set out how climate change is taken into account, describe stewardship policies, including voting and engagement, and explain how such risks are integrated into investment decision-making. This is no longer optional; it is embedded in the core governance documents of the scheme.

Secondly, larger schemes are required to publish an annual implementation statement. This must explain how the policies set out in the statement of investment principles have in fact been followed. In other words, schemes must not merely declare their approach to environmental, social and governance matters but demonstrate how that approach has been put into practice. This has moved the framework from being purely policy-based to being demonstrably action-based.

Thirdly, schemes with £1 billion or more in assets, together with authorised master trusts, must comply with climate risk reporting aligned with the Task Force on Climate-related Financial Disclosures framework. This includes governance of climate-related risks, strategy for transition, scenario analysis, metrics and targets, such as carbon intensity, and annual public reporting. These are not light-touch obligations; they are detailed, prescriptive and public-facing requirements. Taken together, this represents a significant body of regulation. It requires trustees to consider financially material risks, including climate-related risks. It requires them to disclose how those risks are managed and to report publicly on progress and metrics.

Against that background, we should be cautious before layering additional statutory requirements on top of what is already a comprehensive regime. Trustees have fiduciary duties to act in the best interests of members, they must take into account financially material considerations, they are accountable to the Pensions Regulator and they operate within a framework that has been progressively more demanding in recent years. Trustees should retain the ability to determine, within that framework, which investments are in the best interest of their members.

Our task in this House is to ensure there is clarity, coherence and proportionality in regulation, and that we identify genuine gaps, rather than duplicate existing obligations. My aim in engaging on these amendments is precisely that: to ensure that we debate this matter with a clear understanding of the substantial framework that already exists, and to probe carefully whether there are specific technical deficiencies that require further legislative interventions. This is an important area, but it is equally important that we legislate with precision and with full awareness of the structure that is already in place.

[Baroness Sherlock (Lab)]

My Lords, I am very grateful to the noble Baronesses, Lady Hayman and Lady Coffey, and the noble Lord, Lord Sharkey, for introducing their amendments, and all noble Lords for contributing to a very interesting discussion. I will start with Amendment 212 from the noble Lord, Lord Sharkey.

While I recognise the aim behind this amendment, the Government believe that decisions about whether to invest, divest or engage must rest with trustees, who are already legally required to invest in the best financial interests of their members and to consider climate-related risks as part of that duty.

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I therefore await the response from my noble friend the Minister with interest. I support amendments in both groups, because of the lack of understanding and the way they were misled, and some sort of measure is required. For AEA Technology, there is clearly a responsibility on the Government, through the PPF or separately—that is a matter of detail to me. They should be entitled to redress. The integration case is a bit more difficult, because we cannot blame the Government for employers’ inability to explain to people what their scheme provided, but there should be a huge obligation on employers where they decided what the scheme structure should be and failed to explain it to their scheme members. These are different cases, but they are united by a failure to deliver what scheme members could reasonably expect.

[Baroness Stedman-Scott (Con)]

My Lords, I begin by thanking the noble Lord, Lord Palmer, for bringing forward these two amendments. I hope noble Lords will forgive me if I am relatively brief. At this stage, I am not sure that there is a great deal to add beyond listening carefully to the Minister’s reply and reflecting on it.

Turning to Amendment 216, the intention behind the proposed new clause is plainly serious and honourable. It goes to the heart of many of the issues that the noble Lord explored in speaking to the more specific provisions in Amendment 218. It seeks to ensure that, where members of occupational pension schemes have suffered detriment as a result of the actions or omissions of employers, sponsors or administrators, those injustices are properly examined. That instinct is entirely understandable.

When failures occur, whether through poor governance, inadequate communication or regulatory weakness, the consequences can be profound. Members may discover losses only years later, often at or near retirement, when there is little opportunity to recover. For some, that can mean genuine hardship. It is therefore right that this House remains vigilant and does not dismiss concerns about injustice lightly. The proposed new clause is also right to emphasise information failures, governance weakness and access to redress. Transparency, fiduciary duty and effective routes to remedy are fundamental to maintaining trust in the pension system.

However, while the intention is sound, we must consider carefully whether this is the right practical solution. First, there are already several mechanisms in place to investigate and adjust injustice. The Pensions Regulator exercises oversight and enforcement powers, the Pension Ombudsman provides an independent route for complaints and can issue binding determinations and parliamentary committees have repeatedly examined systemic issues in pension governance. Before establishing a further independent review, we should ask whether there is a clearly defined gap in the existing framework.

Secondly, the proposed new clause is framed in very broad terms. It calls for a

“review into injustices experienced by members … as a result of the actions or omissions”

across the occupational pension landscape. That could encompass decades of case history, multiple regulatory regimes and a wide variety of scheme structures. There is a risk that the scope becomes so expansive that it proves difficult to deliver focused and actionable conclusions within the proposed timescale.

We must also be mindful of expectations. A statutory independent review, particularly one examining injustice and potential options for compensation, may raise hopes of large-scale financial redress. If the eventual conclusions are more limited, or if remedies carry significant financial implications, it may lead to further disappointment among those affected.

If there are clearly identifiable categories of members who have fallen through gaps in the system, or areas where regulatory architecture has demonstrably failed, those issues should indeed be examined with care and precision. In short, the intention behind the proposed new clause is principled and compassionate. It recognises that pensions are about security and dignity in later life, and that injustice in this sphere can have lasting consequences. The question for us is whether a broad, independent review, commissioned within three months and covering the full occupational landscape, is the most effective and proportionate way to achieve that objective. I look forward to the Minister’s reply.

[Viscount Thurso (LD)]

The noble Baroness has answered the broad point in my noble friend’s first amendment, but there is the narrow point in AEA Technology, which seems to meet exactly what she said: namely, that there is a specific gap that members have fallen through, where Ministers in this place and the other place are both giving cast-iron assurances and documentation and still there is a problem. Does she accept that this needs particular attention?

[Baroness Stedman-Scott (Con)]

I made it very clear we have to look at where things have fallen through a system and where people have been severely impacted, and we have to look at it compassionately. My question was whether this is the right method and vehicle to do this, not whether we should look at it.

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[Baroness Stedman-Scott (Con)]

My Lords, I support Amendment 217, tabled by my noble friend Lady Neville-Rolfe. This amendment does not seek to diminish the value of public service, nor to undermine the pensions of those who dedicate their careers to the NHS, our schools, the civil service, the Armed Forces, the police or the fire service. Rather, it asks for something far more modest and necessary: transparency, long-term thinking and honesty about sustainability.

The amendment would require the Secretary of State to conduct and publish a review of the long-term affordability, intergenerational fairness, fiscal sustainability and accounting treatment of our major public service pension schemes, including the NHS pension scheme, the teachers’ pension scheme, the Civil Service Pension Scheme, the Armed Forces pension scheme, the police pension scheme and the firefighters’ pension scheme. My noble friend Lady Neville-Rolfe has outlined clearly and forensically the challenges of the concerns about the sustainability of unfunded public sector schemes. These are not new, but they are becoming more pressing. In 2023-24, total employer and employee contributions amounted to £49.9 billion. Total payments to pensioners were £55 billion. That left a shortfall of £5.1 billion, met directly from general taxation. In other words, today’s taxpayers are already topping up the system.

According to the Policy Exchange, unfunded public sector pension liabilities now stand at approximately £1.4 trillion: around 45% of GDP and approaching half the size, or more, of the official national debt. These are not hypothetical sums; they are long-term promises underwritten by future taxpayers. Unlike funded private sector schemes, most public sector pension contributions are not invested to generate returns; they are returned to the Treasury while current pensions are paid from current spending. This means future liabilities depend on future taxation. The burden is simply rolled forward. That may be sustainable—but it may not be. Surely this Committee is entitled to know which it is.

My noble friend Lady Noakes in her foreword to the Policy Exchange report set out clearly that transparency and realism are essential if we are to protect both pensioners and taxpayers. A mature system does not fear review; it welcomes it. I ask the Minister: do the Government believe the current trajectory of unfunded public service pension liabilities is sustainable over the next 20 or 30 years, what assessment has been made of the intergenerational fairness of asking younger taxpayers—many without access to defined benefit pensions themselves—to underwrite these commitments, how does the Treasury account for these liabilities in long-term fiscal planning, and are they fully reflected in measures of public sector net worth? Finally, if the Government are confident in the system’s sustainability, why resist a formal review that would provide clarity and reassurance?

This amendment would not prescribe reform; it simply asks for a comprehensive review and publication of the facts. If the costs are sustainable then let us demonstrate it, and if adjustments are needed then let us confront them honestly.

[Baroness Sherlock (Lab)]

My Lords, I thank the noble Baroness, Lady Neville-Rolfe, for introducing Amendment 217, which would require the Secretary of State to produce and publish a review of public service pension schemes, focusing on different aspects of the cost, affordability and accounting treatment of these schemes. I remind the Grand Committee that I am a member of the parliamentary pension scheme, and therefore of my appreciation of the work of the noble Viscount, Lord Thurso.

The noble Baroness is quite right to focus on the affordability of these schemes and what this means for intergenerational fairness, given that unfunded public service pension schemes pay out over £60 billion in pensions and lump sums each year and are often the single largest liability in the whole of government accounts.

However, as has been indicated already, and as the noble Baroness will know only too well, her party conducted a major review during the coalition Government, in the form of my noble friend Lord Hutton’s Independent Public Service Pensions Commission. That led to major reforms, including the new schemes to which all active members of the main schemes are contributing today, with a move from final salary to career average design, higher pension ages and higher member contribution rates. Due to the McCloud judgment and the resulting choice exercise for affected members, those members may have been building up only since April 2022, meaning that these major reforms are only now fully bedding in for all members. As my noble friend Lord Davies noted, the then Government committed to the 25-year guarantee, in effect committing to no further major reforms to public service pension schemes until 2040.

The proposed review would be conducted by the Secretary of State for Work and Pensions. However, I note that statutory public service pension schemes are the responsibility of the Chancellor of the Exchequer, and I know that the Treasury works closely with the OBR and the NAO on this policy area already.

The centrality of the questions that the amendment would require the review to consider means that much of this information is regularly published already. For example, the OBR publishes a forecast of the cash-flow cost of public service pensions over the coming years as part of its forecast at every fiscal event, including spending on pensions and lump sums, income from pension contributions and the net balancing payment to or from the Exchequer. The OBR also publishes long-term projections of spending on public service pension schemes as a share of GDP as part of its fiscal risk and sustainability reports. As noted, the most recent forecast from September 2024 projects that spending will decline from 1.9% of GDP to 1.4% of GDP over the next 50 years.

Demographic changes as a result of longevity or migration are taken into account in the OBR’s long-term analysis. The sensitivity of scheme liabilities to longevity is central to the four-yearly valuation reports used to set employer contribution rates across schemes. Both the valuation reports and the whole of government accounts contain detail on different accounting treatments of scheme liabilities and how to interpret the resulting headline figures. Given that all this information is regularly published already, and the reforms to public service pension schemes that have already been implemented, a government review into the affordability of these schemes would merely collate existing information in one place.

Let me address some of the specific questions that were raised, turning first to the treatment of pensions and the whole of government accounts. In recent years, liability has decreased significantly, falling from £2.6 trillion in 2021-22 to £1.4 trillion in 2022-23 and £1.3 trillion in 2023-24. The whole of government accounts report is fully transparent in explaining that these changes were driven by an increase in the applicable discount rate rather than changes in the amount of pension being accrued by scheme members. The whole of government accounts reports present this liability in accordance with the international financial reporting standards. There are no plans to change that approach and nor do we think there should be.

However, I am aware that members of the PAC have asked whether this liability could be presented on a more permanent basis, to show how it would change in the absence of changes to the discount rate, to aid user understanding. The Treasury is currently exploring options to present pension liabilities on a constant basis. To be clear, any such presentation would be purely supplementary and would not affect the underlying pension liability calculations or the way those are presented in the financial statements.

The noble Baroness, Lady Neville-Rolfe, asked why the Government are funding the gap permanently. The answer is that current contributions reflect the cost of current employment—pensions to be paid in the future. Current contributions are not intended to be and do not relate to current pensions in payment, which were earned years or indeed decades ago. So current pension costs reflect pensions earned. This is therefore not an appropriate basis to consider affordability. Traditionally, the central measure for Governments has been pensions as a proportion of GDP.

On whether it is right to be paying these kinds of pensions, I am very grateful to the noble Viscount, Lord Thurso, for his stirring defence. It is really important to recognise that, sometimes, this is discussed as though all public sector employees are calling in huge salaries and doing little for them. He defended how so many people in the public sector are driven by vocation and a calling into public service: they do things to serve and often have lower salaries than they might have elsewhere. I pay tribute to all those who are in that position.

It is true that, compared with the private sector, remuneration in the public sector is weighted towards pension. This is why public service pension schemes are so central to the Government’s fiscal forecasts. However, the noble Viscount is quite right: public sector remuneration has to be considered in the round, across pay and pensions. That is why pension provision is specifically taken into account as part of the pay review body process across the major public service workforces.

It is also important to distinguish between the generosity and cost of the schemes and their DB design. My noble friend Lord Hutton noted in his review for the coalition Government that they are a large employer capable of bearing the risks inherent in a DB design. It is thus in a different position from other employers. In a sense, cutting public service remuneration, whether from pay or pensions, would allow any Government to score savings for the Exchequer, but the fact is that reward packages for each public sector workforce have to be designed to maintain the required levels of staffing and to deliver the required public services.

Finally, it is worth remembering that the changes made following the Hutton review were significant. As I said, the scheme design changed from final salary to career average; pension ages were increased to state pension age for most schemes and to 60 for the police, firefighters and the Armed Forces; member contribution rates were increased across schemes, except for non-contributory Armed Forces schemes; and other aspects of scheme design were modernised, for example, in supporting flexible retirement. At the time, it was estimated that those reforms would save £400 billion over 50 years. Separately from the Hutton reforms, the then Government also switched the indexation of the scheme from RPI to CPI, in line with other forms of spending.

This has been a very interesting debate but, as I have said, most of the information that has been sought in the review is out there already, so such a review is not currently worth while. I hope the noble Baroness can withdraw her amendment.

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[Baroness Stedman-Scott (Con)]

My Lords, I shall speak to Amendment 219A, tabled by the noble Baroness, Lady Altmann, and moved by the noble Baroness, Lady Bowles. This amendment would ensure a more structured and joint approach between government departments and their related regulators, including the PRA, the FCA and the Pensions Regulator, so that their respective responsibilities for solvency, consumer interests, member protection and the promotion of growth are properly aligned.

I understand very clearly where the noble Baroness is coming from. Indeed, I am reminded of our earlier debate in Committee when I spoke to Amendment 206 alongside my noble friend Lady Coffey’s Amendment 180A. At that time, we touched on an issue that remains unresolved—the fact that very similar pension products could be treated differently, depending on whether they fall within the remit of the Pensions Regulator or the Financial Conduct Authority. That observation is not controversial—it is simply a reflection of how our current regulatory architecture has developed over time. Different bodies created at different moments for different purposes now oversee parts of what, to the saver, appears to be the same market. It is therefore entirely reasonable to ask whether greater alignment would improve clarity, consistency and outcomes. There may well be areas where closer co-ordination would be beneficial.

I shall not rehearse in full the arguments that I made previously, but I continue to believe that a formal co-ordination protocol offers three important virtues. First, it provides flexibility. A protocol can evolve as the regulatory landscape changes, allowing co-operation to deepen or adjust without the need for immediate structural overhaul. Secondly, it allows for escalation. If problems persist or new risks emerge, the framework for co-ordination could be tightened, strengthened or made more prescriptive. Thirdly, and perhaps most importantly, such a protocol can generate the evidence base for future reform. If, over time, it becomes clear that more fundamental consolidation of regulatory functions would better serve consumers and markets, the experience of structured co-ordination would provide the practical foundation of that decision. In that sense, this amendment is not about precipitating institutional change but about coherence; it is about ensuring that solvency, consumer protection, member outcomes and growth are pursued not in isolation but in a balanced and mutually reinforcing way.

For those reasons, I believe that the amendment from the noble Baroness, Lady Altmann, raises an important and constructive point for the Committee to consider.

[Baroness Sherlock (Lab)]

My Lords, I am grateful to the noble Baroness, Lady Bowles, for introducing Amendment 219A on behalf of the noble Baroness, Lady Altmann. As we have heard, it would require regulations made under the Bill to be aligned with the technical actuarial standards.

I say at the start that I share the concern that governing bodies work together to ensure that members are protected and that schemes work to secure the best outcomes. It is also important that trustees have considered the range of options available to them before making decisions on their schemes’ direction of travel and committing funds to any particular option. However, I assure the Committee that there is already a lot of collaboration between the Government and regulators on a formal and informal basis. Trustees, in line with their duties, are considering the options for their schemes in the round.

This amendment would require trustees themselves to comply with the criteria for technical actuarial standards. These are intended for actuaries to comply with, who must operate according to the standards set by the Financial Reporting Council. Actuaries will then provide advice to trustees in response to trustee requests, highlighting the risks, assumptions and options available to them.

Actuarial analysis plays an important role in informing the process. It provides a clear assessment of the risks, underlying assumptions and range of options available for a given request. But it is advisory in nature and does not, in itself, determine the final decision. Trustees will then draw on this information to inform their decisions about the effective operation and governance of the scheme. It will be considered alongside other advice that trustees may consider appropriate to obtain, including investment, legal and covenant advice. But trustees are ultimately the decision-makers, and they remain fully accountable for the choices that they make on behalf of their members.

Trustees already consider the correct endgame for their schemes. The risks and opportunities facing schemes differ according to a range of factors, including the maturity of the scheme and the strength of the employer covenant. Under the funding code, trustees are required to set out their funding and investment strategy, describing how they intend to meet members’ benefits over the long term—their long-term objective. The funding code requires trustees to assess the key risks to delivering their funding and investment strategy, to explain how these risks are monitored and to set out the steps being taken to mitigate them. Trustees must also assess the employer covenant, as the employer’s financial strength is central to supporting the scheme.

The Pensions Regulator has set out guidance for schemes to consider their long-term objective and options, including buyout, superfunds and run-on, which sets out clear expectations of trustees. It will be updating the guidance and will work with the FCA and, where appropriate, the PRA and FRC to ensure alignment across all guidance relating to considerations of alternative options. Requiring alignment between regulations and professional standards could have unintended consequences, including reducing flexibility for trustees and requiring a succession of further legislative changes to maintain alignment as these standards evolve over time. It could also result in the actuarial profession being the driver behind the content of regulations, when this should clearly be a matter for government policy.

It is crucial that trustees remain in the driving seat when making decisions for schemes, which this amendment would have the effect of removing. I am grateful to the noble Baroness, Lady Bowles, for giving us the opportunity to have this debate, on behalf of the noble Baroness, Lady Altmann, but I hope she feels able to withdraw the amendment for the reasons that I have outlined.

Social Security Benefits Up-rating Order 2026

Baroness Stedman-Scott Excerpts

Tuesday 10th February 2026 Grand Committee

[Lord Davies of Brixton (Lab)]

I thank my noble friend the Minister for presenting the regulations. I will make a brief grouse that one of the sets of regulations we are debating was not on the table, and it was not even in the Royal Gallery. I know it is only three pages, but it should have been there, so I hope some action will be taken to make sure that it does not become a habit.

I have a couple of questions for my noble friend the Minister. One of the things that annoys me about current debates on pensions is when people fail to clarify or acknowledge that the triple lock applies only to part of the state pension.

Although the basic pension, or the new state pension, has increased by 4.8%, almost all of the rest of the other elements that go towards the total amount that people receive is being increased by 3.8%, so the average increase across the board will be somewhere between 3.8% and 4.8%. I feel it particularly personally because my own state pension will be going up by 4.2%; those of you who are any good at algebra will be able to work out what my state pension is from that simple fact. My question for my noble friend the Minister is: what is the average increase in the state pension across the board for all recipients? It is certainly not 4.8%, and it will not be 3.8%. It will be somewhere in the middle. I have not given notification of this question, so I would be quite happy to receive an answer in writing, but it is a very relevant figure that we should make sure people understand.

My second question arises from the accompanying document: the report from the Government Actuary on the uprating. On page 16 of the report, there are projections for the fund up to 2030-31. We see here that the balance in the fund at the end of the year is increasing from £89.6 billion in the current year and more than doubles over a period of five years to £163.7 billion. This is a relevant figure when we are told that state pensions are too expensive and at a time when the fund from which those pensions are paid is building up increasing balances.

Another relevant comparison is that, in the coming year, the balance at the end of the year as a percentage of benefit payments is 59% and, by the end of this five-year period, will have increased to 89%. This compares with the expectation—or a sort of target, though not a statutory target—that the balance should more typically be something like 17%. We are building up very substantial balances in the National Insurance Fund. Many people nowadays do not take the National Insurance Fund seriously at all, but I believe that it is a real fund; it is accounted for separately. I really want to know this: do the Government have a long-term plan for the balance to be held in the National Insurance Fund?

This has arisen, of course, because successive Governments have come to regard national insurance contributions as simply a way of raising additional revenue; I have made this point when we have discussed contribution rates in the past. This is the only figure we get that actually shows how contributions are affecting the National Insurance Fund. The Government need to explain it in a bit more detail to us again. I would be interested in what my noble friend the Minister says initially, but, again, a written explanation of the Government’s policy in relation to the size of the balance in the National Insurance Fund would be a relevant factor to take into account when discussing the affordability of national insurance benefits.

[Baroness Stedman-Scott (Con)]

My Lords, I thank the Minister for introducing these orders in her usual detail. I will speak to both: the draft Social Security Benefits Up-rating Order 2026 and the draft Guaranteed Minimum Pensions Increase Order 2026. Although they are being debated together today, they are fundamentally different instruments raising distinct policy issues. It is therefore right that they are addressed separately, so I will begin with the draft Guaranteed Minimum Pensions Increase Order.

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[Lord Davies of Brixton (Lab)]

This is neither the opportunity nor the time to have a debate on the Pensions Act 2011, but the cap on GMPs was limited to 3% because the state took over the responsibility for paying increases on private pensions in excess of 3%. However, under the coalition Government’s legislation amending pensions, those increases were, in effect, lost. The noble Baroness expresses surprise, but we have to go back to the legislation introducing the new state pension, which was introduced by the coalition Government. In doing so, they took away the state’s obligation to pay increases in excess of 3%, so any obligation to pay anything more than 3% is solely on the state, not the employer. It would not be appropriate to suggest that the employer should pay increases over the 3% level because it was the state’s responsibility, but the coalition Government took it away.

[Baroness Stedman-Scott (Con)]

I appreciate the noble Lord’s intervention. I will read Hansard. We will write to the noble Lord and start some correspondence on that issue. I appreciate the points made by the noble Lord. Everybody knows that he knows what he is talking about and that he is well versed in pensions legislation. If he is happy for me to do so, I will pick that point up with my colleagues.

I turn to the draft Social Security Benefits Up-rating Order 2026. The shadow Secretary of State for Work and Pensions, Helen Whately, has rightly led calls for the Government to move more quickly and clearly in setting out their plans for welfare reform. Sickness and disability benefits alone are forecast to cost the taxpayer £100 billion by 2030. The shadow work and pensions team has consistently argued that the Government are failing to confront the structural drivers behind rising welfare expenditure. Delays in doing so carry a cost not only to the public finances but in missed opportunities to redirect spending towards other pressing government priorities.

It is extraordinary that the Timms review has only just agreed the names of the committee members appointed for a review that Stephen Timms is leading into sickness benefits, including with group members representing the disabled. The work has not yet begun. It is nearly two years after the general election, so can the Minister confirm that his committee is on track to give an interim review this spring? Can she also confirm that it will indeed be 2027 before his committee reports and that, by then, no progress will have been made in this Parliament, allowing for likely legislation following a government response?

These concerns sit alongside the wider economic impact of Labour’s jobs tax. The Autumn Budget 2024, in particular the increase in employer national insurance contributions, has been associated with the loss of an estimated 50,000 full-time equivalent jobs. This has implications for not only employment levels but the long-term health of the National Insurance Fund. The difficulty with this draft order is one not purely of substance but of process. The instrument uprates pensions and working-age benefits together, leaving no scope to consider the appropriateness of each element independently or to debate the Government’s policy intentions for each in detail.

Rather than dwell further on the procedural constraint, it is worth noting that the issues raised by this uprating instrument sit alongside the Government’s announcement yesterday on universal credit reform and the legislation now laid before Parliament. Taken together, they speak to the direction of travel in welfare policy and the assumptions underpinning the current uplift. The Government argue that these reforms are intended to rebalance the benefits system, to address perverse incentives and to support more people into work. We are told that the current gap between health-related universal credit payments and the standard allowance discourages labour market participation, and that narrowing this gap for new claimants is necessary to restore fairness and sustainability.

I therefore have a number of questions for the Minister. First, what assessment has been made of the behavioural impact of introducing a significantly lower health element for new claimants? Secondly, although existing claimants and those with severe or lifelong conditions are protected, how confident are the Government that the criteria used to determine severity are sufficiently robust, consistent and fair across the system? Thirdly, the Government have announced £3.5 billion in employment support alongside the expansion of pathways to work advisers. How will success be measured? Will outcomes be judged by sustained employment, earnings progression or reductions in case loads, and over what period?

Finally, the Government expect these reforms to deliver savings of £950 million by 2030-31. Do those projections assume stable labour market conditions? What sensitivity analysis has been undertaken should employer demand weaken further? I hope that the Minister sees the link and will be happy to answer these questions.

[Baroness Sherlock (Lab)]

My Lords, I shall get through as many points as I can, and if I cannot, I will check Hansard and write to noble Lords. I am delighted to find that writing to members of the Committee is now a bipartisan activity, rather than just on the government side, so it is all very interesting.

I will start with the overall critique from the noble Baroness, Lady Stedman-Scott. As she said, this is what the shadow social security team throw at the Government on a regular basis: that they are not doing enough to bring down welfare spending, and that everything is terrible. I start by saying that the system the Opposition critique is of course a system that we inherited from them. All the things we are often told are wrong with it are things that were entirely in the gift of the previous Government. They did not address any of those problems. The only attempts they made were struck down by the High Court for being illegal, whereas this Government have actually taken action.

As the noble Baroness alluded to, we have already taken action to make the health and disability system more sustainable by rebalancing rates of universal credit from this April to tackle some of those inappropriate incentives in it. Our investment in pathways to work will help many more people with health conditions back into meaningful work. We have started the Timms review to make sure that we find a sustainable way forward. On timing, I can say to the noble Baroness that we anticipate that the review will report in autumn of this year. I have no reason to believe that it is not on track to do that.

I will come on to some of the critique from the other side. Noble Lords have said that we are either not doing enough to reduce social security spending or not doing enough to increase it, so let me try and lean in the other direction to be balanced. My noble friend Lady Lister is absolutely right: we are in Grand Committee, and many of us have been in Grand Committee on a regular basis—annually—to do this. Some of us have moved positions from one side to the other, but now we are here. This point is that this debate is heard, it goes on the record, and I always look very carefully, whether in government or opposition, at the comments made by noble Lords. I am grateful for them; it is a debate well worth having.

I understand the point my noble friend is making about the adequacy of benefits, but from April, this Government are delivering the first ever sustained above-inflation rise in the basic rate of universal credit since it was introduced. Just under 4 million households will benefit overall from that change, which is estimated to be worth £760 a year by 2029-30 in cash terms for a single parent aged 25 or over, or around £250 above inflation. We have also done other things. We introduced the fair repayment rate from April last year, reducing overall universal credit deductions from 25% to 15%, which again benefited approximately 1.2 million of the poorest households. I respect my noble friend for constantly pushing us to go further, but I put on record that the Government have done something significant, and I thank her for acknowledging this.

In terms of the rebalancing, my noble friend Lady Lister is right that, unusually this year, the personal allowance rates of universal credit are not covered by these because the Universal Credit Act, which did the rebalancing, took them out for the relevant period. They will therefore be made by regulations but when we discussed the primary legislation, the Universal Credit Bill, the formula was made really clear. The only reason the numbers were not in there is because they relate to CPI, so the actual numbers depend on what CPI turned out to be. The percentage relationship to CPI was made clear and there was the opportunity to debate that in the Bill. Hopefully, that reassures her on that front.

I understand my noble friend’s concerns on the local housing allowance point, but we have to step quite carefully in this area. DWP currently supports renters by spending around £34 billion a year on housing support for low-income renters, including £12 billion in the private rented sector. The April 2024 one-year LHA increase cost an extra £1.2 billion in 2024-25. It will be approximately £7 billion over the next five years. This is an area where the changes cost a lot of money. We know that LHA rates will not meet all rents in all areas, but it has always been acknowledged that they would never be able to do that.

This Government are trying to address the underlying problems driving some of these issues by prioritising the fundamental issue of the lack of housing supply, through the £39 billion investment in the social and affordable homes programme, which is still the biggest boost to social and affordable housing in a generation. For those who need additional support and have a shortfall to meet their rent costs, our new crisis and resilience fund replaces discretionary housing payments in the household support fund from this April, supported by £1 billion a year, including Barnett impact, through the spending review period. Importantly, we have been able to give a multi-year reassurance to local authorities that the money is coming through.

On the benefit cap, I know that my noble friend will never be a fan of it, and I understand her concerns, but this Government believe that entering or returning to employment is best for individuals and the economy; we have taken significant steps to help them do so. The benefit cap encourages personal responsibility while maintaining a strong safety net. On uprating, this has to be reviewed every five years, and 2027 is the next time it will definitely have to be done. It is up to the Secretary of State when it is reviewed, and that is the latest it can be.

Youth Unemployment

Baroness Stedman-Scott Excerpts

Thursday 5th February 2026 Lords Chamber

[Baroness Smith of Malvern (Lab)]

We have looked at information from around the UK and from previous job subsidy schemes to help to design this. Of course, the first six job guarantee areas that I mentioned in the original Answer include one that covers a significant area of Wales. We will also use the experience of that to build the national rollout that will come in the autumn.

[Baroness Stedman-Scott (Con)]

My Lords, recent analysis shows that in 2025-26 the real cost of hiring an 18 to 20 year-old on the minimum wage has risen by around 13% compared with just over 3% for someone on average earnings, despite under-21s largely being outside employer national insurance contributions. In light of this, what assessment have the Government made of the combined impact of the national insurance contributions and minimum wage policy on youth employment, and how are they ensuring that young people are not priced out of entry-level work or any other part of the labour market?

[Baroness Smith of Malvern (Lab)]

We made a commitment to equalise the 18 to 20 national minimum wage with the national living wage. We asked, as all recent Governments have done, the independent Low Pay Commission to recommend youth rates to enable us to do that, and we also included within the remit the expectation that it would consider how to do this in a way that avoids increases in unemployment. The April 2026 uplift ensures that the Government are taking cautious steps towards achieving this commitment, and that is the way we will continue to progress.

Pension Schemes Bill

Baroness Stedman-Scott Excerpts

Committee stage
Thursday 5th February 2026 Grand Committee

[Lord Palmer of Childs Hill (LD)]

My Lords, this amendment has the distinction of being in a grouping all of its own, which obviously shows how important it is. The proposed new clause in it would require the Secretary of State to publish a report within 12 months on

“the impact of consolidation in the occupational pensions market”.

It would ensure, I hope, that Parliament and the public have transparency on how consolidation is reshaping the sector. We know that consolidation is accelerating in the pensions market and, although scale can deliver benefits—I hope—it can also raise risks: reduced competition, fewer choices for savers and further barriers for new entrants. A clear evidence base is an essential part of the solution to strike the right balance.

The report referenced in this amendment calls for information on a number of things. The first is market concentration—for instance, trends in the number and size of schemes and the level of provider dominance. The second is effects on competition and innovation: whether consolidation is driving efficiency or stifling creativity and diversity. The third is consumer choice: how member options are being affected. The fourth is barriers to entry: challenges faced by small and medium-sized providers in entering or growing in the market. The last is an assessment of whether current competition and regulatory safeguards are sufficient.

The report would also have a particular focus on exclusivity arrangements, exit charges and pricing structures that may distort the market. Furthermore, the Pensions Regulator and the Competition and Markets Authority would have a role in overseeing these risks. The review would also examine potential policies or regulations to support new entrants and maintain a healthy and competitive pensions market.

To summarise, we know that consolidation must serve savers’ interests, not just the interests of the largest providers. This proposed new clause would ensure that Parliament is properly informed—it should be informed on all things, whether on this or on the noble Lord, Lord Mandelson—that regulators are held to account and that future policy is based on evidence. From a Liberal Democrat perspective, well-functioning markets matter. Competition, diversity of approach and the ability for new entrants to challenge incumbents are essential if savers are to benefit over the long term. Ministers need to explain why a formal review of consolidation is resisted, given the scale of structural change this will accelerate. We are asking just for a review, and we hope the Government will not think this too much to ask for before we enter this new realm. I beg to move.

[Baroness Stedman-Scott (Con)]

My Lords, it is a pleasure to close this debate and respond to the remarks of the noble Lord, Lord Palmer, on his Amendment 184. I am grateful to him for raising this issue, because it goes to the heart of how we ensure that pension reform delivers better outcomes for savers rather than simply neater market structures on paper. I think there is reasonably wide backing across the pensions industry for the Government’s broad objective of greater consolidation and efficiency within the defined contribution market. Many stakeholders accept, and indeed support, the proposition that increased scale, when combined with robust governance, strong investment capability and appropriate oversight, has the potential to deliver stronger long-term outcomes for members. Few would argue for fragmentation for its own sake.

However, support for consolidation is not the same as support for consolidation at any cost, or consolidation pursued without sufficient regard to its secondary effects. Well-founded concerns remain that the current design of the scale test risks it being too blunt an instrument. In particular, it does not distinguish adequately between schemes that are genuinely underperforming and those smaller or mid-sized providers that, despite operating below the proposed thresholds, none the less deliver consistently high-quality, well-governed and, in some cases, market-leading outcomes for savers. Indeed, the Government’s own analysis underlines this risk. The chart contained in paragraph 70 of the Government’s 2024 report shows no clear or consistent correlation between assets under management and gross five-year performance across large parts of the master trust and group personal pension market.

The principal scale-related concern identified appears to relate not to well-run schemes operating below the threshold but to the very smallest arrangements, in particular certain single-employer schemes where governance capacity and resilience can be more limited. That matters because consolidation in a pensions market is not a neutral process. This is not a typical consumer market. Savers are largely captive, choice is constrained, switching is rare and inertia is high. In such an environment, reductions in the number of providers can weaken competitive pressure long before anything resembling a monopoly appears. The risk is not always higher charges tomorrow but slower innovation, less responsiveness and poorer outcomes over time.

That is why this amendment is important. It would ensure that consolidation serves savers and that Parliament retains a clear grip on how the market is evolving. Small distortions in competition today—barely visible in the short term—can compound into materially worse outcomes over 30 or 40 years of saving. In a system built on long horizons, early and structured scrutiny is essential.

There is also the question of innovation. Smaller and newer providers have often been the source of advances in member engagement, digital capability, decumulation options and investment design. If consolidation raises barriers to entry through disproportionate compliance costs, restrictive exit charges or exclusivity arrangements, innovation risks being squeezed out, even where headline charges appear to fall. Efficiency gains that come at the expense of progress are a poor bargain for future retirees.

The report required by this amendment would not obstruct sensible consolidation; nor would it second-guess the direction of travel. Rather, it would provide Parliament with the evidence needed to ensure that consolidation is proportionate, targeted and genuinely in the interest of savers. It would help ensure that regulatory and competition safeguards remain fit for purpose as market structures change, and that opportunities for new high-quality entrants are not inadvertently closed off.

For these reasons, I believe that this amendment strikes the right balance. It is supportive of reform, alert to risk and grounded firmly in the long-term interests of those whose retirement security depends on the decisions we take today.

[The Minister of State, Department for Work and Pensions (Baroness Sherlock) (Lab)]

My Lords, I thank the noble Lord, Lord Palmer, for introducing his amendment, which would require the Government to conduct a report on the impact of consolidation in the occupational pensions sector within 12 months of the Act being passed. I am grateful to the noble Baroness, Lady Stedman-Scott, for her remarks and her acknowledgement of the benefits of consolidation and the widespread support for it.

The fact is that consolidation is already happening across the pension landscape. The number of DC pension providers has reduced from roughly 3,700 in 2012 to about 950 schemes today. On the DB side, the number of schemes is similarly down from about 6,500 in 2012 to 4,800 in 2026, with a record number of transactions currently estimated in the buyout market. Our aim is to accelerate this trend of consolidation through the DC scale measures and DP superfunds. As I have said before, scale brings numerous benefits directed at improving member outcomes, including better governance, greater efficiency, in-house expertise and access to investment in productive markets.

I am not going to respond in detail to the comments from the noble Baroness, Lady Stedman-Scott, on innovation and other things, because we have given them a decent canter in previous meetings in Committee, but it is absolutely essential that pension schemes remain competitive post-scale. We expect that schemes with scale will innovate and drive competition, especially, for example, in consolidating single-employer trusts. The market will evolve, as will the needs of members, and we expect that the schemes and the industry will be able to align with this.

It is absolutely right that the Bill will lead to major change in the occupational pensions market. Although I do not agree with this particular proposal, I absolutely agree with the noble Lord, Lord Palmer, that we must understand and monitor the impact of these reforms, because the impacts of consolidation really matter. That is why a comprehensive impact assessment was produced, analysing the potential impacts of the Bill, with plans to evaluate the impact in further detail. An updated version of the impact assessment was published as the Bill entered this House; crucially, it included further details of our ongoing monitoring and evaluation plans, including critical success factors and collaboration across departments and regulators.

We have provided the market with clarity on our approach so that changes can be put into effect, but we need to allow time to assess and evaluate the impacts following full implementation. We will assess the overall impacts over an appropriate timeframe, given that the full effects of consolidation will be after the Bill has been implemented.

As I have mentioned before, we published a pensions road map, which clearly sets out when we aim for each measure to come into force. The fact is that many of the regulations to be made under the Bill will not have been made or brought into force within a year of the Bill becoming an Act. Any review at that point could be only very partial. However, the Government are committed to strong monitoring and evaluation of this policy, especially of its impact on members. The noble Lord, Lord Palmer, is absolutely right to point to the crucial role of the Pensions Regulator and the CMA. They are best placed, in the first instance, to monitor the impacts of consolidation as part of their respective statutory functions, including an analysis of emerging trends. The Pensions Regulator, for example, will play a key role in monitoring the impact of consolidation on the trust-based DC pensions market via its value-for-money framework.

I can therefore assure the Committee that we will keep this area under review, consistent with our stated policy aims for the sector and for good member outcomes. We will also continue to monitor our working arrangements with the regulators; this includes their ongoing monitoring of the pensions industry. We will submit a memorandum to the Work and Pensions Select Committee with a preliminary analysis of how the Act has worked three to five years following Royal Assent. The committee may then decide to conduct a fuller inquiry into the Act, consistent with standard practice, as set out in the Cabinet Office’s Guide to Making Legislation.

Given the above, a separate government report risks duplicating work while putting an undue burden on all those involved. If issues are identified by regulators before the Government submit a post-legislative memorandum, and there is a need for government action, then an evidence-based response can be taken. I completely agree with the noble Lord about the importance of this and I thank him for raising this debate. However, I hope that he feels reassured and able to withdraw his amendment.

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[Baroness Altmann (Non-Afl)]

Good. I now have it and I want to check that everyone else has it too. That is my first question dealt with.

In speaking to this amendment, the aim is to enable members of pension schemes that have gone into the PPF after their assessment period to be extracted, with regulations laid that will govern the terms on which they can be extracted. This is particularly relevant to the AEAT scheme: I know that we will come to this in later groups, with a requirement for a review of the situation. My amendment is trying to facilitate a practical resolution to the problems faced by the Atomic Energy Authority scheme. There are parallels with the Atomic Weapons Establishment or AWE scheme: employees originally had a scheme similar to and in fact derived from that of the UK AEA.

The AWE staff and their pensions were transferred to the private sector, and in 2022 the Government granted a Crown guarantee to the private company scheme. However, members of the AEA scheme were told that the scheme that they were encouraged to transfer to in 1996 would be as secure as that provided by the Atomic Energy Authority public sector scheme. This was not the case, though, because it was not offered a Treasury guarantee. It would appear that the Government Actuary’s Department failed to carry out a proper risk assessment of the various options offered to those members in 1996. Indeed, they were apparently specifically told not to worry about the security of the scheme to which they transferred all their accrued benefits. Of course, all these accrued benefits are pre-1997.

What happened after that is that they went into a private sector scheme. It was a closed section of that scheme, only for the members who transferred their public sector rights into it. The public sector rights had full inflation protection for pre-1997 and members paid an extra 30% or so contribution into that private sector scheme in order to conserve the inflation protection. However, as part of that, the pension they were saving for, the base pension, was lower than the one for those members in the open scheme who had joined not from the public sector. They were working on the principle that that their scheme was secure and that they would be getting the uplifts of inflation. When it failed—the private sector company went bust in 2012—and they went into the PPF in 2016, they suddenly discovered that they had paid 30% more for inflation protection, which was gone. And because they had paid 30% more for that protection and were accruing a lower pension, a 180th instead of a 160th scheme, their whole compensation was lower than that of everybody else who had not had any assurances from the Government that transferring their previous rights into a private sector scheme would generate these kinds of losses.

This is probably the worst example I have seen of government reassurance and failed recognition of the risks of transferring from a guaranteed public sector scheme into a private sector scheme. This amendment seeks to require the Government to lay regulations that would transfer members out of the PPF, those members of the closed scheme, if they wish to. I am not forcing anyone to do so within this amendment. You have to offer them the option of going or staying if they are satisfied with the PPF. Also, a sum of money may need to be paid to the PPF, which would take away the liability and thereby reduce PPF liabilities, but also sets up an alternative scheme that could be along the lines of the AWE arrangements, for example. That would potentially be another option. On privatisation, the Government received a substantial sum of money from the sale of that company, the private sector takeover of the commercial arm of the Atomic Energy Authority. That delivered less money than was paid to the private sector scheme to take over the liabilities. Therefore, the Government have money to pay with, which they have never really acknowledged.

I hope that this amendment is a potentially direct way to help the AEAT scheme, if the Government are minded to consider it. It builds on a provision that is already in the Pensions Act 2004, which talks about situations whereby there is a discharge of liabilities in respect of the compensation, which this amendment would be doing. It prescribes the way in which subsection (2)(d) of Section 169 of the Pensions Act 2004 could be used to help the AEAT scheme.

I have also been approached by a private sector employer whose scheme failed and went into the PPF. At the time, the employer did not have sufficient resources to buy out more than the Pension Protection Fund benefits for his staff. He now is in a position to do that and would like to do so but, at the moment, he cannot get his scheme extracted. He is willing to pay an extra premium to do that, in pursuance of a moral duty to try to give his past staff better-than-PPF benefits. That is what this amendment is designed to achieve. It is built on the connection between AEAT and AWE, but could also help other private sector schemes if the employer feels—it would normally involve smaller schemes—that there is a moral obligation that they can now meet, financially, to recompense members at a level better than the PPF, once the assessment period is over and the resources have gone in, and to take it back out again.

[Baroness Stedman-Scott (Con)]

My Lords, this group concerns the proposed transfer of the AWE pension scheme into a new public sector pension arrangement, as set out after Clause 110 in government Amendments 194 to 202, with the associated measures on extent and commencement in government Amendments 223 and 224.

At first glance, these new clauses are presented as technical and perhaps little more than an exercise in administrative tidying up, reflecting the fact that AWE plc is now a wholly government-owned company. However, on closer inspection, several questions come to mind. This represents a material transfer of long-term pension risk and does so in a way that raises serious questions around principle, process and precedent.

On an IAS 19 accounting basis, AWE plc reported a defined benefit pension deficit of £97 million as at 31 March 2025. The company has already made significant one-off contributions: £30 million in March 2024, following an earlier £34.4 million in March 2022. These payments form part of a recovery plan agreed with the trustee and the Ministry of Defence, and the position is subject to ongoing review. This is an active funding challenge, one that should be considered carefully.

The provisions before us establish a bespoke statutory framework for a single named company. They provide for the creation of a new public sector pension scheme, the transfer of assets and liabilities, the protection of accrued rights, specific tax treatment, information-sharing powers, consultation requirements and arrangements for parliamentary scrutiny. All of this is meticulously itemised and carefully drafted.

Yet my concern lies not with the drafting but with the policy and constitutional choice that sit beneath it. We are told repeatedly that members’ rights will be preserved; that phrase carries considerable weight. The question is a simple one: which rights precisely are being preserved? Are we referring solely to rights accrued through past service or does that protection extend to future accrual as well? Does it encompass accrual rates, indexation arrangements, retirement age and survivor benefits or are members’ entitlements merely frozen as a snapshot at the point of transfer? What happens if the rules of the receiving public sector scheme change in future? These questions go to the heart of both member security and parliamentary responsibility. They deserve answers in the Bill, not assurances in principle or reliance on mechanisms that may evolve long after this Committee has given its consent.

There are also practical questions that remain unanswered. How exactly will trustees be formally discharged of their responsibilities? Additionally, does this change relate to DC members? Will each defined contribution pot be automatically converted or will past defined contribution rights be crystallised, with future accrual taking place under a defined benefit structure? For scheme members, these questions go to the very heart of retirement security.

I also question the decision to legislate company by company. This new clause is not objectionable because it concerns pensions; it is objectionable because it concerns one named corporate identity. Primary legislation should set rules of general application.

If the policy rationale here is sound, and if it is right that the pension schemes of wholly owned government companies should be transferred into the public sector on certain terms, that principle should be capable of being expressed generally and should not be hard-coded for AWE alone. Otherwise, we will face an unhappy choice in the future: if AWE’s status changes again, Ministers must either live with an outdated statute on the books or return to Parliament with yet another Bill to amend it. Neither outcome represents good lawmaking.

There are also practical questions that I hope the Minister will address. Will members receive individualised benefits statements, comparing their position before and after the transfer in clear, comprehensible terms? What support will be made available for members who need independent guidance, rather than reassurance from the scheme sponsor itself? Will there be formal consultation with scheme members and recognised unions, and will the responses to that consultation be published?

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[Baroness Altmann (Non-Afl)]

My Lords, I have added my name to these amendments. I very much support the aims of the noble Baroness, Lady Bowles, to ensure there is proper flexibility in the levy paid by companies to the PPF. The PPF can then use its discretion to decide which companies should pay more than others and which companies are more secure than others in terms of their pension schemes. The current requirement is based on circumstances that have fundamentally changed over the past 20 years or so, since the whole system was first thought of.

The PPF is one of our incredible success stories in terms of protecting people’s pensions by successfully investing money that it has taken in. It has worked far better than anyone would have anticipated at the time, and we need to pay tribute to those who have been running the PPF; they have done an extraordinarily good job in the face of sometimes very difficult circumstances. I hope that the Government will think favourably about the possibility of allowing the PPF this kind of flexibility, given that the situation with pension schemes, surpluses and funding levels has changed so fundamentally.

[Baroness Stedman-Scott (Con)]

My Lords, the amendments in this group in the name of the noble Baroness, Lady Bowles, are thoughtful and proportionate. They raise genuinely important questions about how we can future-proof the operation of the Pension Protection Fund.

Clause 113 amends the provisions requiring the PPF board to collect a levy that enables the board to decide whether a levy should be collected at all. It removes the restriction that prevents the board reducing the levy to zero or a low amount and then raising it again within a reasonable timeframe. We welcome this change. It was discussed when the statutory instrument passed through the House, at which point we asked a number of questions and engaged constructively with the Government.

The amendments tabled by the noble Baroness would go further; once again, the arguments she advances are compelling. Amendment 203A in particular seems to offer a sensible way to shape behaviour without micromanaging it—a lesson on which the Government may wish to reflect more broadly, especially in relation to the mandation policy. If schemes know that the levy will always be raised in one rigid way, behaviour adapts, and not always in a good way. In contrast, with greater flexibility, employers retain incentives to keep schemes well funded, trustees are rewarded for reducing risk and the levy system does not quietly encourage reckless behaviour on the assumption that everyone pays anyway.

This amendment matters because it would ensure that, if the PPF needed to raise additional funds, it could do so in the least damaging and fairest way possible at the relevant time. I fully appreciate that the PPF is a complex area but, as the market has changed and is changing, and as the pensions landscape continues to evolve, the PPF must be involved in that journey. These are precisely the kinds of questions that should be examined now, not after rigidity has caused unintended harm.

I turn briefly to Amendment 203C. We are open to finding ways to prevent the levy framework becoming overly rigid, which is precisely why we supported the statutory instrument when it came before the House. Instead of hardwiring an 80% risk-based levy requirement into law, this amendment would place trust in the Pension Protection Fund to raise money in the fairest and least destabilising way, given the conditions of the year. Flexibility may well be the way forward. I have a simple question for the Minister: have the Government considered these proposals? If the answer is yes, why have they chosen not to proceed? If it is no, will they commit to considering these proposals between now and Report? I believe that that would be a constructive and proportionate next step.

[Baroness Sherlock (Lab)]

My Lords, I am grateful to the noble Baroness, Lady Bowles, for introducing her amendments and explaining why she wants to advance them. As she said, taken together, they would give the PPF much more flexibility—full flexibility, in fact—in deciding how to set the levy by removing the requirement for at least 80% of the PPF levy to be risk-based. Obviously, in the current legislation, 80% of the levy has to be based on the risk that schemes pose to the PPF; this supports the underlying principle that the schemes that pose the greatest risk should pay the highest levy.

Although the PPF is responsible for setting the pension protection levy, restrictions in the Pensions Act 2004 prevent it significantly reducing the levy or choosing not to collect a levy when it is not needed. As has been noted, the PPF is in a stronger financial position and is less reliant on the levy to maintain its financial sustainability. That is why, through the Bill, we are giving it greater flexibility to adjust the annual pension protection levy by removing the current legislative restrictions.

Clause 113 will enable the PPF to reduce the levy significantly, even to zero, and raise it again within a reasonable timescale if it becomes necessary. To reassure levy payers, Clause 113 provides a safeguard that prevents the board charging a levy that is more than the sum of the previous year’s levy and 25% of the previous year’s levy ceiling. The legislative framework will also enable the PPF to continue to charge a levy to schemes it considers pose a specific risk. In support of this change, the PPF announced a zero levy for 2025-26 for conventional DB schemes and is consulting on setting a zero levy for these schemes in the next financial year. That would unlock millions of pounds in savings for schemes and boost investment potential, and it has been widely welcomed by stakeholders.

On the way forward, as the PPF is not currently collecting any levies from conventional schemes, whether risk based or scheme based, the make-up of the split is less consequential for schemes: a different percentage of a zero charge is still zero. But, while the PPF is strongly funded, it underwrites the whole £1 trillion DB universe, as I said. There is inevitably huge uncertainty about the scenarios that could lead to the possibility of the PPF needing to charge a levy again in the future, but it cannot be entirely discounted. We recognise the concern that, if that were to happen, the proposed legislation does not go far enough to allow the PPF to calculate the appropriate split between risk-based and scheme-based levies, particularly as the number of risk-based levy payers is expected to diminish over time.

Obviously, the amendments tabled here would give the PPF full discretion on how the split of the levy is calculated and set. While that may be welcomed by some, our view is that we need to consider any changes carefully to ensure that any legislation is balanced, is proportionate and gives the right flexibility while maintaining appropriate safeguards. That will take time. We will continue to consider whether further structural change to the PPF levies may be required in the future and, where it is, whether it works for the broad spectrum of eligible DB schemes, the PPF and levy payers.

In response to the noble Baroness, Lady Stedman-Scott, the Government’s view is that there is a reason the framework is set in legislation: to give levy payers confidence on future calls. But, as I said, we will consider the way forward. I cannot say to the noble Baroness that we will do that between now and Report—it will take time to reflect on future changes and, if there are to be any, to make sure that they happen—but I am grateful to her for raising the matter and for the debate that it has produced. I hope she will feel able to withdraw her amendment.

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Moved by

[Baroness Stedman-Scott]

204: After Clause 117, insert the following new Clause—
“Pension investment in social bonds: framework, value for money and market enablement(1) The Secretary of State must, within 12 months of the passing of this Act, prepare and publish an assessment of whether a pension-specific framework should be established to support trustees of occupational pension schemes who wish to invest, where they consider it appropriate, in social bonds and other forms of social infrastructure investment.(2) The assessment must consider the extent to which such a framework could—(a) provide clarity on the application of trustees’ fiduciary duties in relation to social bonds,(b) set out principles for assessing risk, return, liquidity, duration and transparency of such investments, having regard to the long-term nature of pension liabilities,(c) support consistency and comparability in the evaluation of social bonds across schemes, and(d) facilitate trustee confidence and member understanding of such investments.(3) In particular, the Secretary of State must consider whether, and how, the social and economic outcomes associated with social bonds could be reflected within the value for money framework applicable to occupational pension schemes, including—(a) the relevance of long-term economic impacts to member outcomes,(b) the extent to which such investments may mitigate systemic or economy-wide risks material to pension savings, and(c) the presentation of information to members in a clear and proportionate manner.(4) The assessment must also consider how a pension-specific framework could support the development of a credible and investable pipeline of social bond opportunities, including— (a) how public bodies, local authorities, social enterprises or other issuers might bring forward proposals in a form suitable for consideration by pension schemes,(b) the role of standardisation, intermediaries or aggregation vehicles in reducing transaction costs and improving investability, and(c) how such proposals could be assessed on a consistent basis without imposing any obligation on pension schemes to invest.(5) In developing the assessment, the Secretary of State must consider what metrics and evidential standards would be required to ensure that any framework for social bonds is pension-specific, including—(a) metrics relating to long-term risk-adjusted financial performance,(b) alignment with the duration and cash flow characteristics of pension liabilities,(c) the financial materiality of social and economic outcomes to pension savers over time, and(d) the avoidance of reliance on generic or non-financial impact measures not relevant to pension scheme decision-making.(6) Following the assessment, the Secretary of State must—(a) publish the conclusions of the assessment, and(b) where the Secretary of State considers it appropriate, issue statutory guidance or make regulations establishing a pension-specific framework for the prudent assessment, reporting and communication of investments in social bonds.(7) Nothing in this section—(a) requires trustees to invest in social bonds or any other asset class, or(b) alters the requirement that trustees act in the best financial interests of scheme members.”

[Baroness Stedman-Scott (Con)]

My Lords, I will speak first to my Amendment 204. I make clear that this amendment does not require trustees to invest in any particular asset class, nor does it seek to redefine or dilute fiduciary duty in any way. Those safeguards are explicit in the amendment. Trustees must always act in the best financial interest of scheme members, and nothing here displaces that principle, consistent with the approach that we have taken throughout our deliberations in Committee. Instead, the amendment asks the Government to step back and consider whether trustees who wish to explore investments such as social bonds or social infrastructure would benefit from clearer pension-specific guidance and a more coherent framework within which to operate.

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In summary, although we very much share the aim of ensuring that pension capital does not contribute to human rights harm, the Government believe that the existing responsible investment framework remains the appropriate way forward, it being effective, flexible and proportionate. I look forward to continued discussions; in the meantime, I hope that the noble Baroness can withdraw her amendment.

[Baroness Stedman-Scott (Con)]

My Lords, I shall conclude briefly. I hope that it is clear from the discussion this afternoon that there is a shared concern across the Committee to see pension schemes operate responsibly, prudently and in the best long-term interests of their members. Where we differ is on how that objective is best achieved. In my view, the strength of our pensions system lies in its balances: clear legal parameters set by Parliament, coupled with trustee independence, evidence-based judgment and accountability to members.

I thank all noble Lords for their contributions—in particular, the noble Lord, Lord Pitt-Watson, who made a valuable and excellent contribution. He made my heart sing, and I think that our hearts beat in concert in terms of responsible and social investment. I am very keen to learn more from the noble Lord about his experience of responsible investment.

I appreciate the Minister’s response. She has been very clear—message received. I look forward to discussing social impact bonds more with the Minister and anybody else in the Committee who wishes to take part. With the leave of the Committee, I beg leave to withdraw my amendment, but, if it comes back on Report, I will be very happy.

Amendment 204 withdrawn.