Pension Schemes Bill
Lord Davies of Brixton ExcerptsTuesday 3rd February 2026
(1 day, 14 hours ago)
Grand CommitteeRead Full debate Pension Schemes Bill 2024-26 View all Pension Schemes Bill 2024-26 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 152-VI(a) Amendments for Grand Committee (Supplementary to the Sixth Marshalled List) - (3 Feb 2026)
Lord Davies of Brixton (Lab)
I possibly touched on this issue in the wrong group, but as the noble Baroness, Lady Kramer, has indicated, I raised, in essence, the same points in the previous debate.
I am in favour of mandation, but what worries me is that the Government do not seem to understand—and have never acknowledged—the consequences, which have been set out so clearly by the noble Baroness, Lady Kramer, and the noble Lord, Lord Vaux. There are consequences if the Government tell people how to organise their retirement income and if, having told them how to proceed to achieve a good income, it subsequently turns out that the Government are wrong. As I said last week, they will not necessarily be legal consequences, but political consequences and moral consequences.
I draw attention to the Financial Assistance Scheme, which we are going to be debating later this week. It was established because the Government had to acknowledge their failure to introduce the appropriate law and protect people, and they lost income. That is an exact precedent for where we are now. That Government had a responsibility to protect those people and failed to do so. After a vigorous campaign by those who had been affected, and the threat of losing a case at the European court, which was possibly more influential on the Government, they had to act. It is not wild speculation that the Government will end up having to meet these moral and political consequences; it has already happened. The Government have to face up to what they are proposing here.
Baroness Altmann (Non-Afl)
My Lords, I support this amendment in principle. I share the concerns just expressed by the noble Lord, Lord Davies, about the risk of mandating a substantial proportion of any pension fund to be invested in what is, in effect, the highest-risk end of the equity spectrum, which is meant in other circumstances—if you ask the Pensions Regulator and so on—to be the risky bit of investment.
The Government may need to think again about the consequences of potentially being so narrow—of course, in the Bill, we do not even have the exact definition of what the assets are going to be in terms of these unlisted opportunities—because the opportunity set for risky investments that can actually benefit the economy is a lot wider than seems to be indicated in the Bill. Surely the more diversified the portfolios, the better risk-adjusted returns members can expect. I hope that the Government will give the Committee a more precise understanding of their expectations for the types of assets and for the consequences of being automatically enrolled in a scheme that invests in private equity assets or other unlisted assets that end up failing completely—as has happened so frequently with that type of investment in the past.
Lord Fuller (Con)
My Lords, there are three clauses here and one would have to be pretty churlish to want to reject and disagree with the thrust of what they are trying to achieve. But I am concerned, as is my noble friend Lord Younger, about how we might put in these contractual arrangements. I am concerned that we are going to sleepwalk into a situation where there is unrealistic customisation and we are going to set unrealistic expectations about the ability of schemes—particularly the larger schemes, because we know schemes are going to be much bigger than today—to give personalisation.
We are going to see, if I read these regulations correctly, a huge number of bespoke arrangements. There is going to need to be candour, not just from the schemes themselves but from the members when they are asking questions. What is the duty upon the person to take advice? Normally, at the moment, if you want to change your pension arrangements, you need to take advice and pay for it. Who will pay the fees? Is it the member or the scheme itself?
When I think about candour, it leads me down the path of thinking about what happens to people who are in impaired life situations. Perhaps they have cancer or another terminal disease. I am not going to trespass on the arguments that are made every Friday in your Lordships’ House, but as we have learned from those debates, there is a lack of certainty about people who are in those impaired situations.
That leads on to my noble friend’s point about capacity and capability of trustees to make these judgments—that is difficult. So I am entirely in agreement with the idea that people should be able to have control and a bespoke arrangement just for them, but I am concerned about the practicality of delivering what can be subjective judgments of the trustees. In these large schemes you may have to deal with hundreds or thousands of these applications.
In local government—a parallel world— the EHCP system mandates a personalised regime for children’s special educational needs. I suppose my concern is that it has led to a huge bureaucracy—a cottage industry of a huge amount of appeals, process and, of course, delay. When you have pensions, you cannot have a delay because people are at the end of their lives—are they going to make it?
I want to agree with the thrust of this, and these are probing amendments, but I am interested in the Minister laying out in some detail how these bespoke arrangements might be calculated and defended by trustees with lots of other things to do. I am also very much drawn to the amendments from the noble Baroness, Lady Noakes, about being realistic about the current ways of work, in which people have blended retirements, and about the requirement to have indexation and all those sorts of things. It does seem complicated, and I am interested to hear what the Minister might say about it.
Lord Davies of Brixton (Lab)
This part of the Bill is particularly important and the part to which I gave the strongest welcome. There is, inevitably, a caveat: we do not know much of the detail because it depends so much on what the regulations say and require. But this is the necessary and right framework to provide pathways for people to get the sort of benefits in retirement that best suit them.
I have some concern that there has been discussion of having more than one default, which rather defeats the concept of a default. Either the member will have to choose the appropriate default or someone else will, which places a particular responsibility on whoever will take the decision. It is important.
Viscount Younger of Leckie (Con)
My Lords, before I conclude on this group, I thank in particular my noble friend Lady Noakes for her probing amendments, which ask a number of important questions.
I will make a few points and rounding-up comments but, before I do, I want to pick up on my noble friend Lord Trenchard’s remarks. I must admit that I was very surprised to hear the remarks made by the noble Lord, Lord Davies, on his view of the pensions landscape; they were fairly forceful. As he will expect, I entirely disagree with his comments. I just make the point that our party brought in improvements to auto-enrolment and introduced the dashboard system; I pay tribute to my noble friends Lady Coffey and Lady Stedman-Scott. I have more to say but I will give way.
Lord Davies of Brixton (Lab)
I just want to pick up the noble Viscount’s point about auto-enrolment. It was a Labour Government and a Labour Bill that introduced automatic enrolment. The only change that the coalition made was to delay it, thereby reducing people’s future pensions.
Viscount Younger of Leckie (Con)
We brought this into effect. Of course, that takes us back to the coalition in 2010-15, but so much has been done since then. I will not go on but, if the noble Lord feels so strongly about this, why does he not probe his own Government more on why there is nothing in the Bill about saving more for retirement? I have not even mentioned the points in the Budget on salary sacrifice. I just wanted to get that in, as the noble Lord has become quite political.
Moving on swiftly, Amendment 177 probes whether all default pension benefit solutions are required to provide a regular income and whether that income must necessarily be for life. Here, I pay some respect to the noble Lord, Lord Davies, because he rightly used the expression “pathways for people”, which are what this is all about. I am grateful to the Minister for providing some clarification on this point. She used a very good expression, “freedom to choose”, which is key in our discussion on this particular group.
However, given the significance of this issue for members’ retirement outcomes, it is vital that this clarity is communicated, not just within this Committee but clearly and consistently to those whom these reforms are intended to serve. My noble friend Lord Fuller spoke about the importance of personalisation, which I think is a very good expression.
Communication will be especially important in the context of guided retirement, where members may reasonably assume that a default implies a particular structure or guarantee unless told otherwise. The use of the word “default” is more than semantic, as I know the noble Baroness, Lady Altmann, has laid out in the past—I note she is not in her place. Ensuring that expectations are properly set will be central to building confidence and avoiding confusion at the point of retirement. Again, my noble friend Lord Fuller raised the importance of ensuring that certain cohorts must be particularly noticed and properly treated.
Lord Davies of Brixton (Lab)
Once again, I find myself in the position of being in broadly the same area as the noble Lord, Lord Fuller. I agree with much of what he said. We can always be in favour of reviews. The only substantial objection is that the Secretary of State—or more accurately, the hard-pressed officials—has better things to do, particularly with having to implement the Bill when it is an Act.
The Pensions Commission is also crucial. The noble Viscount, Lord Younger, for whom I have a lot of respect, challenged me on why I am not doing more on adequacy, in effect. Of course, the answer is that I fully support the Pensions Commission; that is where the focus should be on that area. I think my noble friend the Minister is aware of some of my views on the level of inadequacy in pension provision, but the commission is where it should be at.
Pensions are inherently political. I make no apology for making political points. I am against the idea of moving towards a joint regulator. There are two broad types of pension provision: individual contracts and employer-sponsored collective provision. I am very much in favour of the latter as opposed to the former. The former has, and always will have, severe problems, whereas collective provision is what has led the high standard of private provision across, broadly, half of the working population.
The problem with having a single regulator is essentially cultural. One or the other approach is bound to predominate in its thinking. It is impossible to ride two horses, unless you are in a circus, and that is not where we want to be. We need a regulator for collective employer-sponsored provision, and a regulator for market-based provision. That is what we have got so, in a sense, in my few remarks I have already carried out the review that has been called for and reached a satisfactory solution.
Lord Palmer of Childs Hill (LD)
My Lords, what worries me is that the noble Baroness, Lady Coffey, says we should grab the challenge. I am not sure that I am ready to grab the challenge and not convinced that we should abandon, in any way, the Financial Conduct Authority. I wonder what representations have been made by the FCA on this. I would like to hear how the FCA feels about the Pensions Regulator taking over and what has happened in the past.
Lord Davies of Brixton (Lab)
Everyone agrees that they are a good idea, but in her reply, can my noble friend the Minister tell the Committee what serious contenders there are to take advantage of this quite complicated and lengthy piece of legislation? The practical experience so far is that a good idea has never quite cut it, and other options are now becoming available. Are people actually going to go down this road?
Baroness Sherlock (Lab)
My Lords, I am grateful to the noble Baronesses, Lady Noakes and Lady Bowles, for introducing their amendments. I will start with Amendment 181, which would broaden the range of schemes able to apply for a transfer into a superfund by effectively including active schemes.
On the points made by the noble Baroness, Lady Noakes, the responses to the DWP’s initial consultation on DB consolidation noted clear practical difficulties in assessing the future of a scheme. It is not clear how the regulator would conclude that the scheme will have no active members at an unspecified time of transfer. Furthermore, closing DB schemes can be a protracted exercise, where unforeseen complicated issues can arise. This Government, and previous Governments, have been consistent in saying that superfunds should be an option only for closed DB schemes. To avoid such complications for the scheme trustees and the regulator, Clause 65 sets out that closed schemes alone can transfer to a superfund and only where they are unable to secure member benefits with an insurer at the date of application.
Amendment 182 from the noble Baroness, Lady Bowles, would broaden the range of schemes able to apply for a transfer into a superfund by removing the restriction that schemes which can afford insurance buyout cannot transfer to a superfund. By removing this requirement from the Bill, superfunds could compete directly with insurers. That would risk superfunds offering endgame solutions in the same space as insurers, while being held to a lower standard in terms of member security.
The onboarding condition was introduced following industry response to the consultation on superfunds which first identified this risk. There was concern that employers may see superfunds as a way to relinquish their responsibilities at a lower cost than insurance buyout, and that trustees could be pressured to transfer into a superfund when a buyout solution is available. It is important for us to remember that insurers and superfunds operate under very different regimes. Insurers under Solvency UK requirements have stringent capital requirements and their members are fully protected by the FSCS.
Superfunds are built on existing pensions legislation and, as such, the PPF acts as a safety net providing compensation. The PPF provides a great deal of security, but not as much as the FSCS. Superfunds offer a great deal of security, but their capitalisation requirements are not as stringent as insurers as they are not designed to be as secure. That is because superfunds have been designed as a slightly less secure, more affordable endgame solution for schemes that are well funded but cannot afford buyout. They are not intended as a direct competitor for insurance buyout. The onboarding conditions address the risk of regulatory arbitrage, recognising those differences.
Clause 65 therefore provides clarity by ensuring that only appropriately funded schemes can transfer to superfunds. As introduced, it includes the power to substitute another condition if needed. We will consult with industry to assess what, if any, further refinements may be needed to protect scheme members.
Amendment 183 from the noble Baroness, Lady Bowles, would require superfunds to assess their protected liabilities threshold at the lower of a prudent calculation of a scheme’s technical provisions or based on a Section 179 calculation of the buyout price of PPF-level benefits. This amendment, and the noble Baroness, recognise the importance and impact on this threshold of the Chancellor’s Budget announcement that the PPF will provide prospective pre-1997 indexation for members whose schemes provided for this.
The purpose of the protected liabilities threshold is to ensure that in the rare circumstances where a superfund continues to underperform, the scheme is wound up and member benefits are secured at the highest possible level. The threshold is an important part of member protection and has been designed to prevent members’ benefits being reduced to PPF compensation levels should a superfund fail. The threshold also recognises the risk that scheme funding could continue to deteriorate in the time it takes to wind up.
Clause 71 therefore aligns the protected liabilities threshold with the calculation of those protected liabilities. It sets the threshold at a level above the Section 179 calculation, so that members in a failing superfund receive higher-than-PPF benefits. There is the added benefit that PPF-level compensation that is bought out with an insurer protects the PPF itself.
We recognise the impact that changes announced in the Budget have on the superfund protected liabilities threshold, and that it would not be good for members’ outcomes if a superfund is required to wind up prematurely when there is still a strong likelihood that benefits can be paid in full. Any changes to reduce the threshold, however, will require careful consideration and need to ensure that members and the PPF are protected. The level of the protected liabilities threshold will be subject to further consultation with industry as we continue to develop the secondary legislation.
The Committee will also note that for those instances in which technical provisions are lower than the Section 179 valuation of a scheme, Clause 85(4) allows the Secretary of State to provide by regulations that a breach of a threshold has not taken place. These calculations have the potential to converge, and sometimes swap, in very mature schemes and we acknowledge that that occurrence is more likely following the introduction of pre-1997 indexation for prospective PPF benefits.
The use of this power will aim to ensure there are no unintended consequences for well-funded superfunds in those circumstances. It is not our intention to place any additional pressures on superfunds. Providing pre-1997 indexation for PPF benefits is the right thing to do. All members in schemes supported by the PPF benefit from knowing they can count on higher levels of compensation should the worst happen—a fact that should be celebrated. We are committed to working with industry to create, as the noble Baroness, Lady Stedman-Scott, questioned, a viable and secure superfunds market and will consult on issues such as these following Royal Assent to ensure we appropriately balance the metrics of each threshold.
My noble friend Lord Davies asked me to look forward to see what demand there will be for this. That is quite hard to do, but we estimate that around—I am told—130 schemes with £17 billion in assets may take up the option of entering a superfund, but we recognise these figures are highly uncertain. It will depend on how the industry reacts, future economic conditions and competition. The numbers, of course, could be significantly greater if the market grows.
It has been an interesting discussion, but I hope in the light of my remarks, the noble Baronesses feel able not to press their amendments.
Women’s State Pension Age Communication: PHSO Report
Lord Davies of Brixton Excerpts(2 days, 14 hours ago)
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Lord Davies of Brixton (Lab)
My Lords, I should let the House know that I am joint chair of the All-Party Parliamentary Group on State Pension Inequality for Women, which serves to bring the concerns of many 1950s women to the attention of parliamentarians. I am glad that my noble friend the Minister, in answering the question, accepted the Government’s previous position that there was maladministration here. The Statement itself does not use the word. I was going to ask whether the Government still accept that there was maladministration; clearly they do, because my noble friend used the word twice.
My concern about this Statement is that it says:
“We also agree with the ombudsman that women did not suffer any direct financial loss from the delay”.
The trouble with that is that it ignores the first part of paragraph 12 in the ombudsman’s report, which puts that into context:
“We find that maladministration in DWP’s communication about the 1995 Pensions Act resulted in complainants losing opportunities to make informed decisions about some things and to do some things differently, and diminished their sense of personal autonomy and financial control”.
The report goes on at a later stage to say that this is a material injustice. So, although there was no financial loss, there was a material injustice found by the ombudsman. I could ask a whole series of questions, but my specific question is: do the Government accept that damages can be ordered by the ombudsman even when there was no direct financial loss? The Government appear to put considerable weight on the idea that there was direct financial loss, but there has never been a requirement by the ombudsman to require the Government to pay compensation. Does my noble friend accept that point?
Baroness Sherlock (Lab)
My Lords, I do not. I will try to explain. We accept the PHSO’s—the ombudsman’s—findings on maladministration, but we specifically do not agree with the ombudsman’s approach to injustice. The reason for that is that the evidence taken as a whole, including the evidence from 2007, suggests that the majority of 1950s-born women would not have read and recalled the contents of an unsolicited letter. As I said, those less knowledgeable about pensions, the ones to whom it would have made the most difference, were less likely to read it. Therefore, the point is that a letter would have been unlikely to make a difference to what the majority of women knew about their own state pension age.
It is on that basis that we decided it would not be appropriate to pay financial compensation. We accept that the ombudsman recommends it, but it is based on the ombudsman’s approach to injustice, which we do not accept. If we do not accept that it is possible to construct a compensation scheme to compensate only those who have suffered injustice, because we believe the vast majority of those knew that state pension age was changing, then it would not be appropriate and that is the basis of the decision.
Pension Schemes Bill
Lord Davies of Brixton ExcerptsMonday 26th January 2026
(1 week, 2 days ago)
Grand CommitteeRead Full debate Pension Schemes Bill 2024-26 View all Pension Schemes Bill 2024-26 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 152-V(a) Amendment for Grand Committee (Supplementary to the Fifth Marshalled List) - (23 Jan 2026)
Baroness Altmann (Non-Afl)
My Lords, I support every word that the noble Baroness, Lady Bowles, has said. I hope the Minister understands that this series of amendments is designed, once again, to help the Government.
The policy of excluding the very asset classes that the Government want to promote and want pension funds to invest in, just because they are held in a particular form, seems irrational. The process used to introduce it, as the noble Baroness, Lady Bowles, outlined, was materially flawed. There was a lack of consultation and the policy is directly contrary to some previous ministerial Statements and to the stated policy intention. I cannot see how any reasonable person could argue that excluding these companies is a legitimate means of achieving the stated policy objective. The decision goes against common sense and defies economic logic. It opens pension scheme members up to less choice, higher long-term costs and, potentially, new risks such as gating or frozen investments.
Amendments 122 and 123 are designed specifically to ensure that, if a closed-ended investment company holds the assets in which the Government want pension funds to invest as a result of the Mansion House Accord, they can do so. Amendment 123 includes these as qualifying assets under the Bill and Amendment 122 talks about ensuring that, if securities are
“listed under Chapter 11 of the UK Listing Rules or the Specialist Fund Segment that provide exposure to the qualifying assets”,
they too can be included.
These amendments would not change the intentions of the Bill or the Government’s policy; they would reinforce them. If schemes cannot invest in listed securities, we will exclude the closed-ended funds that hold such assets, for no obvious reason other than, perhaps, the fact that the pension funds or asset managers that are launching the long-term asset funds will obviously prefer to have their own captive vehicle under their direct control, rather than those quoted freely on the market.
I would argue that, by excluding investment trusts and REITs as qualifying assets, we will fetter trustees’ discretion as to what assets they can invest in and how they can do so. I do not believe that the Government want to do this. I think this is an unintended consequence of wanting not to allow schemes just to say, “Well, I invest in Sainsbury’s and it has a lot of property in the UK, so that’s fine”. But this is a very different argument. I hope that the time spent by this Committee on these funds will prove worth while and that this dangerous, damaging exclusion can be removed from the Bill.
If the Government want—as they say they do—pension schemes to invest in UK property, the amendments on this topic would allow them to choose to hold shares in Tritax Big Box, for example, which is a listed closed-ended fund. It is a collective investment REIT, not a trading company, and UK regulators, the stock market and tax regulation recognise its functions as a fund. It is just like a long-term asset fund, but it is closed-ended instead of open-ended. Under the Bill, pension funds would not be able to invest in it, even though it holds precisely the type of private assets targeted by this section of the Bill.
The amendments would maximise schemes’ choice of investable assets within the target sectors. This would widen competition, which should bring downward pressure on asset management costs; it would reduce the risks of inflating asset prices, by channelling demand into fewer investment pathways; and it would enhance potential risk-adjusted returns. There is simply no reason why master trusts and other pension schemes should object to being given additional freedom to make investments to meet the requirements of these reserve powers. Why are we discriminating against a particularly successful British financial sector offering a proven route to holding the assets in which the Government want pension funds to invest? I have not seen any argument to say that, if we include these amendments, pension funds would have to invest in these companies, but they could use them if it suited their needs.
I look forward to the Minister’s answer. I know and accept that she is in a difficult position, but I have not heard a coherent answer as to why we are going down the route that we are. Tritax Big Box is just one example. It owns and develops assets worth £8 billion and controls the UK’s largest logistics-focused land platform, including data centres, which the Government designated as critical national infrastructure in 2024. Tritax Big Box announced that its data centre development strategy will be partnering with EDF Energy, which manages the UK’s nuclear power, to develop such infrastructure. It is remarkable that such a homegrown success story should be excluded from the opportunities available to pension schemes.
This sector has reinvented itself over the past few decades, from being a holder of diversified quoted equities to managing real illiquid assets. It is generally recognised that it is an ideal structure for holding illiquid assets—it has renewable assets, wind farms, solar farms and National Health Service GP surgeries. All these elements of the economy need significant investment and pension funds could be using their assets to support them. Surely that should be part of the Government’s intention for the Bill. I hope that this possible error in the Bill can be recognised and corrected so that we can move forward without further discussion on this topic.
Lord Davies of Brixton (Lab)
The noble Baroness, Lady Altmann, called on the support of reasonable people. I think of myself as a reasonable person, and I support her. I find the Government’s position on this totally inexplicable. I say in all honesty to my noble friend the Minister that the reasons given so far for these provisions do not in any way explain their position. It is inexplicable.
In my view, it is possible to make an argument that closed-end funds of this sort are more suitable than some other sorts of investments for pension investment because of the possibility of there being additional liquidity. That makes it even more inexplicable. A further problem is that pension funds could invest in an investment company that is not a closed-end fund but holds these investments. However, if it decided to float on the stock exchange, it could not do so because it would lose all the pension fund investments. So there is not logic at all to the Government’s position. There may be some logic, but we have yet to hear it.
Lord Remnant (Con)
My Lords, I very much support the amendments in this group, tabled variously in the names of the noble Baronesses, Lady Altmann and Lady Bowles of Berkhamsted. They all seek to ensure that closed-ended funds, in the form of UK-listed investment companies, are not disqualified from being eligible to invest in the private market assets targeted by the Bill, alongside open-ended funds. I say this not only as a private investor in both types of funds but as one who has sat on and chaired boards responsible for managing both types of investment.
They each have their relative advantages and disadvantages, which I will not enumerate here, but it is in fact investment companies that, over the long term, tend to have lower fees and better performance records, to the advantage of their investors. It seems perverse to exclude them from the Bill, seemingly solely on the grounds that they have listed status, when the nature of their underlying investments is identical to those held by open-ended vehicles. Indeed, investment trusts are particularly suited to the type of investments envisaged by this Bill and the Mansion House Accord—namely, assets that are essentially illiquid. Investment companies hold well over £100 billion-worth in private assets, and unlisted infrastructure and renewables have been among the fastest growing segments in recent years.
As the noble Lord, Lord Davies of Brixton, indicated, it is this ability more effectively to offer liquidity in illiquid assets that particularly distinguishes closed-ended vehicles from their open-ended cousins. It is in times of stress, whether within the investment vehicle itself or more broadly due to general economic or financial conditions, that some of the more unfortunate investment failings occur. They tend to relate to liquidity or lack thereof, they have happened in the recent past and they have occurred in open-ended structures.
Noble Lords will need little reminding of the demise of the Woodford Equity Income Fund. Suffice to say that, in two years, it lost two-thirds of its value; it became increasingly and disproportionately reliant on unlisted investments, which could not be sold to meet investor redemptions; and it was suspended in June 2019, leaving investors unable to access their money.
Noble Lords may be less familiar with the travails afflicting open-ended property funds. Property is an asset class specifically targeted by the Mansion House Accord. The writing was on the wall for them ever since they suspended in the depths of the Covid crisis. That triggered funds in the sector to begin to close down, given the evident problems with liquidity that resulted in a fundamental mismatch in the demands of investors against the liquidity of the underlying asset. These investors are mainly not faceless institutions but retail investors—the same individuals who save for their pensions. The only way in which the managers of the fund can mitigate these liquidity issues is by holding substantial cash holdings, which cuts across its investment objectives and dilutes returns. Once an announcement to close is announced, properties are likely to be sold at fire sale prices into difficult markets, and investors may have no access to their money for well over 12 months.
Institutions running open-ended funds attempted to address these liquidity problems by establishing the long-term asset funds referred to earlier, but their structure is still such that they cannot solve the problem but only rather crudely mitigate it through having more restricted dealing windows than the daily dealing offered by more traditional open-ended funds. They have been authorised by the FCA only since 2023 and are unproven. They are described by one prominent investment platform as high-risk investments recommended for experienced investors who have already accessed the more traditional investment options, yet they qualify under this Bill to the exclusion of investment companies which have proved their worth for over 150 years. I do not understand the rationale for this.
Lord Davies of Brixton (Lab)
I wanted to speak after the noble Lord, Lord Palmer of Childs Hill, because, while I agree with what he said, I slightly disagreed when he talked about the favourable returns achieved by private equity. There is a massive problem with survivorship bias in those figures because the ones you never hear of again do not enter the figures.
I have a question for my noble friend the Minister. It seems an odd bit of drafting to say: “may for example”. Is “for example” doing anything in that sentence? Clearly it is not intended to be all encompassing, so others must be possible; it suggests that the person doing the drafting was not really sure that they liked what they were doing. It is pussyfooting about a bit. Secondly, what do these terms actually mean? I have an idea about “private equity”, but what about “private debt”, “venture capital” and “interests in land”? Goodness knows what the last one means. Are these terms defined anywhere? Can we get a clear definition of these things before we confirm this part of the Bill?
Baroness Bowles of Berkhamsted (LD)
My Lords, I will speak to Amendments 146 to 150. This group of amendments is all about trustees. Although I submit that nothing in this Bill should unsettle the basic foundation of our trustee law, there remains extensive debate in the courts and academic literature, and among trustees, on how far wider policy objectives and emerging risks can be taken into account. I am trying to address some of those.
Amendment 146 would simply reinforce the obvious: fiduciary duty remains the overriding principle of pension governance and trustees must act in the best financial interests of members. That is the cornerstone of trust law. The courts have been clear for decades that trustees must prioritise members’ financial interests above all else. Yet the combination of the Mansion House rhetoric, promotional language in the Bill and the possibility of future regulations has created real anxiety among trustees about whether they are expected to prioritise government preferences over member outcomes. This amendment aims to remove that ambiguity. It would restate the law, reassuring trustees that their primary duty has not changed.
Amendment 147 follows on from that in seeking to introduce a safe harbour. Trustees are increasingly worried about being second-guessed, not for misconduct but for failing to meet expectations that are not clearly defined. Many are lay trustees. They act in good faith, take professional advice and follow their fiduciary duties. They should not face penalties or adverse consequences because they did not meet a quota or chose a different route to the same underlying assets. A safe harbour is a standard legal mechanism used in other regulatory regimes. It protects trustees who do the right thing, prevents retrospective reinterpretation of policy signals and ensures that trustees can make decisions based on evidence, not fear.
Amendment 148, also tabled by the noble Baroness, Lady Altmann, addresses systemic risk. Trustees already consider systemic risks: climate change, economic resilience, supply chain fragility and other long-term factors that materially affect pension outcomes. The Pensions Regulator already expects trustees to consider these issues, but the statutory framework is uneven and expectations are not always clear, so this amendment would codify best practice. It would ensure that trustees consider systemic risks as part of their fiduciary duties, while making it explicit that this does not mandate investment in any particular vehicle. It is about risk management, not direction of capital. Trustees are careful and sensible people and will observe the policy direction, including on private assets. As I said last week, before we had the devil’s clause, there was broad agreement that it would be far better to trust the trustees.
Amendment 149, again from the noble Baroness, Lady Altmann, addresses structural discrimination. I have already dealt extensively with how the Bill risks creating unequal treatment between different collective investment structures. Trustees should be free to choose the most appropriate structure for their scheme, whether listed or unlisted, based on liquidity, valuation, discipline, governance or member outcomes. The amendment would simply ensure a level playing field. It would prevent distortions, protect competition and ensure that trustees are not nudged away from structures that have served savers well for over a century.
Finally, Amendment 150 deals with herding risk. Regulatory herding is a known danger, which we have seen most recently and dramatically with LDI, where regulation, guidance or professional advice pushes everyone in the same direction at the same time and systemic risk increases, not decreases. The Mansion House agenda, if interpreted too narrowly, risks creating precisely that kind of clustering. This amendment would require the Secretary of State to avoid mandating or promoting investment in a way that induces herding and ensure that any guidance emphasises diversification and risk management. It is a simple “Do no harm” provision which learns from recent history. It is also embedded in the terms of the Mansion House Accord, as spoken to last Thursday by my noble friend Lord Sharkey. Trustees must not be forced to purchase assets that do not exist, do not exist safely or do not exist at a fair price.
None of these amendments would obstruct the Government’s objective. None would prevent investment in productive finance. None would limit trustee discretion. What they would do is ensure that trustees remain protected, that their duties remain clear and that the Bill does not inadvertently distort markets, undermine competition or create new systemic risks. These amendments are modest, sensible and protective. They would strengthen the Bill, support trustees and safeguard the long-term interests of pension savers. It is what we should all be thinking about.
Lord Davies of Brixton (Lab)
I support mandation. I am in favour of the Government introducing the measures in this Bill, in principle. All Governments have a duty, not just a right, to deal with market failure. If the current investment advice and structures that we have are failing to deliver investments in the growth that we need in our economy, then the Government have a duty to act. I am not yet convinced that they have all the mechanics of mandation right, but that is the process we are going through at the moment in investigating how it will be achieved.
I am not so sure—I ask my noble friend the Minister to guide the Committee on this—about a question raised at Second Reading to which there was no answer, which applies to this part of Bill. Do the Government understand that the inevitable corollary of mandation is responsibility for the outcome? Outcomes may be better. We are told at length that this will improve things; the aim is to grow the economy to achieve good investments.
The Government may not have a legal responsibility to make sure that happens, but they certainly have a moral responsibility when they are saying how members’ money should be invested and they also, inevitably, have a political responsibility to ensure that they produce a system that enjoys broad public trust. A failure to achieve the Government’s objective will break that trust. Do the Government appreciate and understand the implications of what they are doing?
Pension Schemes Bill
Lord Davies of Brixton ExcerptsMonday 19th January 2026
(2 weeks, 2 days ago)
Grand CommitteeRead Full debate Pension Schemes Bill 2024-26 View all Pension Schemes Bill 2024-26 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 152-III(b) Amendments for Grand Committee (Supplementary to the Third Marshalled List) - (19 Jan 2026)
Lord Davies of Brixton (Lab)
This group raises important issues about the purpose of these proposed changes to the legislation on pension schemes. I am going to move my Amendment 23 and speak to my Amendments 25, 27, 28, 29 and 30—and I thank the Chairman for the correction. I look forward to the speech of the noble Viscount, Lord Younger, on his Amendment 26, which on the face of it asks a perfectly valid question.
The main amendment in this group, Amendment 25, seeks clarification from my noble friend the Minister about the purpose of Part 1, Chapter 2 of the Bill. This chapter is headed
“Powers to pay surplus to employer”.
Other than that, the Bill and the Explanatory Notes are silent on why the law is being changed. I will come back to that, but first I will address my Amendments 23, 27, 28, 29 and 30, which simply seek a change in the terminology used in the Bill, leaving out the word “surplus” and inserting the word “assets” instead.
I make no apologies for what may appear a pedantic point. Words are important. Later amendments from the noble Baroness, Lady Altmann, would also change the wording, so I think that there is an understanding that words are important, but what do I mean in this specific case? Let us consider the difference from the point of view of a scheme member between being told that their employer has taken some surplus from their pension fund and hearing the statement that their employer has taken some assets from their pension fund. I believe that the latter statement is a much better reflection of what is happening. “Surplus” suggests that the money is not needed, which is never true in a pension scheme; “assets” suggests something far more concrete.
It is worth emphasising that there is no certain meaning of what constitutes a surplus. It is not a technical term in actuarial speak; it was not a word that I ever used when devising pension schemes as a scheme actuary. It is widely used in general conversation—I sometimes use it myself—but it does not appear in the technical actuarial guidance, except as required by a cross-reference to legislation on surpluses. I suggest that using the word “assets” is a much clearer and more honest reflection of what is happening and I urge my noble friend the Minister to accept the change.
Amendment 24 was tabled to make it clear that the intended purpose of releasing assets is to be for the benefit of scheme members as much as for the benefit of scheme sponsors—if not more, in my view. As mentioned, there is no indication in legislation of why scheme assets might be released. What are the purposes for which surplus assets will be released? What is the purpose of the change in legislation and the facilitation of such release? It is left entirely in the hands of scheme trustees exercising their fiduciary duty. Government Ministers during the passage of the Bill have made reference to that on numerous occasions.
However, I believe that this is highly problematic. Experience tells us that we cannot rely on all trustees to interpret the appropriate purposes of the release of assets. It has to be in the Bill. The title of the chapter,
“Powers to pay surplus to employer”,
illustrates the problem. I have been advised by the clerks that it is not possible to amend those parts of the Bill, but it simply reflects the content of that particular chapter. As I said, this illustrates the problem. It only talks about the employer but says nothing about scheme members.
The absence of any reference to scheme members in the Bill contrasts with what Ministers have told us on numerous occasions. There has been a consistent message from Ministers throughout the passage of this Bill that the change will be of benefit to members. On the release of surplus, ministerial statements have suggested consistently that it is intended that members will share in the benefits of releasing assets. For example, my noble friend the Minister said at Second Reading,
“the Bill introduces powers to enable more trustees of well-funded defined benefit, or DB, schemes to share some of the £160 billion of surplus funds to benefit sponsoring employers and members”.
So it is not just about employers. In the Government’s own words, it is about members as well as employers. My noble friend went on to say:
“The measure will allow trustees, working with employers, to decide how surplus can benefit both members and employers, while maintaining security for future pensions ”.—[Official Report, 18/12/25; col. 875.]
Scheme members hearing this must assume that, if the employer benefits from a release of assets, they will as well. But there is nothing in the Bill that will make that happen. The Minister for Pensions made a similar statement many times. He has argued consistently, and rightly, that the release of assets—surpluses, if you will—is not just about employers but about delivering better benefits for scheme members.
Look, for example, at the Government’s road map for pensions. It states under the heading “Surplus flexibilities”:
“We will allow well-funded … pension schemes to safely release some of the £160 billion surplus funds to be reinvested across the UK economy and to improve outcomes for members”.
But there is nothing in the Bill that delivers on that promise. The DWP press statement about the Bill said:
“New freedoms to safely release surplus funding will unlock investments and benefit savers”.
Again, there is nothing in the Bill.
Then we find a statement by the Minister for Pensions on 4 September during Committee on the Bill in the Commons:
“It is crucial that the new surplus flexibilities work for both sponsoring employers and members”.—[Official Report, Commons, Pension Schemes Bill Committee, 4/9/25; col. 130.]
Yet again, there is nothing in the Bill. I could go on—there are plenty of examples—but I hope that I have made the point.
If that is the case and the intention is that members as well as scheme sponsors are expected to benefit when assets are released, this objective should be set out clearly in the Bill. This is particularly important because the Bill, as drafted, removes the existing requirement on trustees only to release surplus where this is in the interests of members. We will come to this again when we reach Amendment 37 in the name of the noble Viscount, Lord Thurso. I will support that amendment, but I think that it would be better to put the requirement for members to benefit as well as employers clearly and unambiguously in Clause 9. A defined benefit scheme is a joint endeavour, involving both employees and employer. They should be treated on an equal basis. I ask my noble friend the Minister to accept the point and bring forward a suitable amendment on Report. I beg to move.
Lord Kirkhope of Harrogate (Con)
My Lords, I will briefly intervene because the probing amendments here are important to how we look at the precise nature of surpluses. Clearly, the principle of making it easier to return a genuine pension scheme surplus to employers is worthy of support, particularly given how much has historically been paid by employers into DB schemes, often at the expense of capital investment. But safeguards are absolutely critical—this is the point I want to make about the relationship between employers and trustees in this area. It must be a trustee decision to distribute surplus, and trustees must be required to consider how the surplus has accumulated, as was touched on by the proposer. Was it due to employer contributions, member contributions or strong investment returns?
Under the proposed legislation, employers will no doubt apply immense pressure to steer the distribution towards them and not the members. In exercising their discretion, trustees must be unencumbered, properly advised and protected from the undue and inappropriate pressure that sponsoring employers will no doubt place on them. That is a real concern to me. We must be wary of employers exercising their powers to put in place weak trustees, who will not act in members’ best interests. We must also be wary of making it harder for trustees to distribute surplus to members in favour of employers.
Surplus distributed to members through increased benefits will directly improve the position of the real economy through increased domestic expenditure and of course increased tax receipts. If we are to restrict the use of surplus assets away from scheme memberships to employers, we must ensure that surplus distributed to them is used for reinvestment in the UK economy through capital expenditure. I would like to hear the Minister’s view on that.
On what a surplus is, the changes made by the Pensions Regulator to the DB funding code of practice in November 2024 have codified the requirement for pension scheme trustees to fund DB pension schemes very prudently—I think that those are the words that he used. Further, the investments that trustees are strongly encouraged to hold, through that code of practice, mean that the investment strategies are usually much lower risk than the insurance companies that many pension schemes are now being transferred to en masse under bulk annuity contracts.
In June 2025, the Pensions Regulator issued guidance that suggested that excessive prudence or hoarding of surplus could be considered poor governance by trustees. If we are to make it easier to distribute surplus from pension schemes, the bar for that should not be so low that the security of member benefits is weakened and it should not be so high that it requires schemes to be excessively funded. The current bar of buyout funding is, in my opinion, far too high.
Safeguards are important. It is absolutely critical that trustees are required to take appropriate advice and that actuarial advice is compliant at all times with the relevant technical actuarial standards. Trustees must be able to make informed, evidence-based decisions, unencumbered by the interests of the insurance industry and free from undue employer pressure. That particular relationship concerns me most in our probe into the functions of the surpluses. I hope that the Minister can give reassurances about the position of trustees—how they will be protected and by whom—in this particular contest or area of decision-making.
Baroness Sherlock (Lab)
I am coming on to that, but I am grateful to the noble Lord for pressing me on it. All trustees are bound by duties which will continue to apply when making decisions on sharing surplus. They have to comply with the rules of the scheme and with legal requirements, including a duty to act in the interests of beneficiaries. If trustees breach those requirements, the Pensions Regulator has powers to target individuals who intentionally or knowingly mishandle pension schemes or put workers’ pensions at risk. As the noble Lord knows, that includes powers to issue civil penalties under Section 10 of the Pensions Act 1995 or in some circumstances to prohibit a person from being a trustee.
The key is that the Pensions Regulator will in addition issue guidance on surplus sharing, which will describe how trustees may approach surplus release, and that can be readily updated. That guidance will be developed in consultation with industry, but it will follow the publication of regulations on surplus release and set out matters for trustees to consider around surplus sharing, as well as ways in which members can benefit, including benefit enhancement. That guidance will also be helpful for employers to understand the matters trustees have to take into account in the regulator’s view. I hope that that helps to reassure the noble Lord.
We will come on to some of the detail in later groups around aspects of the way this regulation works, but I hope that, on the first group, that has reassured noble Lords and they feel able not to press their amendments.
Lord Davies of Brixton (Lab)
I thank my noble friend the Minister for her reply and other speakers who have contributed to this debate, which I think was worth having. I am pleased that I raised the issue on terminology. I recognise that it is a lost cause, but I have never been afraid, like St Jude, to support lost causes. It is an important point that we need to understand the vagueness of the concept of surpluses and that it is actual assets that disappear from the fund.
On the substantive point, I am afraid that I did not find my noble friend’s response satisfactory. As she said—I made a note of it—trustees remain the heart of decision-making. That exactly is the point. I am afraid that I do not share the Panglossian view of trustees. Many of them—large numbers of them—do a difficult job well, but it is not true of them all.
It is enough of a problem, as I can attest from my own experience of many years in the pensions industry, that we cannot rely on trustees to deliver in all cases. The balance of power between members and trustees is totally unequal. Members, effectively, are not in a position to question trustees’ discretion and responsibilities, and they cannot take it to the ombudsman, because it falls outside the remit.
When my noble friend says that the Government have been clear, that was exactly my point: they have not been sufficiently clear and have frequently given the members a reasonable expectation that they will share in the release of assets. With those words, I beg leave to withdraw my amendment.
Lord Fuller (Con)
My Lords, I first became a pension fund trustee in 1997. The trustees at the time knew that there was a turning point, and it was probably just as well to get someone who might be alive 30 years later at least tutored in the principles of pensions at that moment—so it was clearly a moment in time. How right they were, because 30 years later, here I am.
I recall that it was a difficult moment for the scheme of which I was a member, and the private company for which I worked. Since the Barber reviews of 1991, with regard to the benefits payable in the final salary scheme, which was still open, it was the will of the directors that at all costs the final salary scheme should remain open and open to new accruals. Progressively, the benefits were diluted from RPI to RPI capped at 5% to RPI capped at 2.5%. Every step was taken and every sinew strained to keep that scheme open. But in 2003, the actuary reported that, on a scheme with assets of just £5 million, £4 million extra had to be tipped in; that was a sucker punch, and the scheme was inevitably at that stage closed to new members.
It turns out that the assumptions that were made, with the benefit of hindsight, were overly prudent. The deficit was exaggerated. But notwithstanding having put more than £4.41 million—that is the number that sits in my mind—into the scheme, three years later there was another £2.6 million to find as well. My goodness, the company could have made much better use of that capital to grow the business, rather than to fill a hole that history tells us was not there to the extent that it appeared.
We are in a situation where our scheme, which we kept open as long as we could, could not stand it any longer when we got to 2003. There was another turning point in 2006, in “A-day”, but I shall park that to one side. All that money was tipped in—and the suggestion that all the money that has gone into the scheme is some sort of pot to be shared now down the line, equally or in some proportion with the members as well as the company, is a false premise. Without the commitment of these private companies in those darkest days, the schemes would have closed much earlier and members would not have participated for those extra increments that they did.
I listened carefully to the noble Baroness, Lady Altmann, who asked what happens for all those people in the pre-1997 schemes. Well, here is the GMP rub. Astonishingly, I received a payment in the past six months, wholly unexpectedly, from my pre-1997 accrual, for the guaranteed minimum pension. So the suggestion that members are not sharing in any of the benefits of the pre-1997 scheme is a further false premise.
I am no longer a trustee of the scheme, but I know the trustees. The professional and actuarial costs associated with calculating these GMPs have been quite extraordinary. In fact, it would be much better for the trustees to have just made an offer, forget the GMP, and everybody would have been much better off.
The GMP issue illustrates the folly of going down the path that this amendment would lead us. All it is going to do is drive trustees into having more expensive calculations, actuarial adjustments, assessments and consultations, whereas, for the most part, the trustees are minded to make some sort of apportionment and that apportionment needs to be balanced, individual for the scheme in its own circumstances, based on how much excess money was tipped into the scheme for all those years in the post-1997 world. It is about having some sort of fair assessment, a fair apportionment. For the most part, the trustees of private schemes have the benefits and the interests of the members completely at heart and I do not see any circumstance when that does not happen.
This amendment is unnecessary for two reasons. On the one hand, trustees take these things into account. Secondly, that money is truthfully the employers’ money because they went above and beyond, listening in good faith to the professionals, the actuaries and everybody else who had put their oar in on the overly prudent basis, as it now turns out, to make good deficits that were not actually there. I say to noble Lords that for all the pounds that were put in post-1997, when other things happened in the macroeconomy and the Budget—which I will not detain noble Lords with—this country’s pension schemes could have been in a significantly stronger position than they are now had the trustees carried on as they were and not listened to some of the siren voices in government and the so-called professional advisers.
Lord Davies of Brixton (Lab)
I strongly support Amendments 26 and 39 from the noble Baroness, Lady Altmann. I have a question on Amendment 39, the proposal that trustees should be able to make one-off enhancements. I understand that there has been some recent change in the tax treatment of such payments, and I wonder if my noble friend could update the Committee on where we are with that.
The noble Lord, Lord Willetts, made the point that we are referring to an issue which will depend on the regulations—one of the problems we face is that this is a skeleton Bill. As I understand it, the question is, in essence: can the trustees use the surplus assets to pay the DC contributions of people who are not in the DB scheme? There is a particular quirk with that. Purely randomly, some schemes established the DC arrangement as part of the DB scheme, and other employers established the DC arrangement as a separate legal entity. It is pure chance which way they went; it depended on their advisers. I have questions about it in idea and principle, but if we are going to admit that, it would be wrong to distinguish between the chance of the particular administrative arrangements that were adapted. I wonder if my noble friend is in a position to comment on that point.
I have significant reservations about the amendment from the noble Lord, Lord Palmer of Childs Hill, for free advice being paid for by surplus. Most members of DB schemes do not need advice—which is the entire point of being in a DB scheme. You just get the benefit. That is what is so wonderful about them. Advice rather than guidance is extremely expensive. The idea that a free, open-ended offer of providing advice should be made needs to be looked at extremely carefully. We have the slight difficulty here in that I am replying to the proposals of the noble Lord, Lord Palmer of Childs Hill, before he has made them, but I have to get my questions in first, and maybe he will comment on that point.
Lord Palmer of Childs Hill (LD)
This seems like a good moment to come in. I first ask the Minister: do the Government agree that a responsible use of surpluses should strengthen confidence in DB schemes and not leave members feeling that prudence has benefited everybody but them? In this, I disagree with the noble Lord, Lord Fuller, because people do feel aggrieved.
I have three amendments here. Amendment 32 is designed to ensure that regulations take account of the particular circumstances of occupational pension schemes established before the Pensions Act 1995. Members of pre-1997 schemes, so often referred to in this debate, are often in a different position to those in later schemes. These schemes were designed under a different legal and regulatory framework. Current legislation does not always reflect those historical realities, creating unintended iniquities.
Amendment 32 would require regulations under Clause 9 to explicitly consider—that is all—these older schemes. It would allow such schemes, with appropriate regulatory oversight, to offer discretionary indexation where funding allowed, so it would provide flexibility while ensuring that safeguards were in place. It would give trustees the ability to improve outcomes for members in a fair and responsible way, and it would help to address the long-standing issue of members missing out on indexation simply because of their scheme’s pre-1997 status. It would also ensure that members could share in scheme strength where resources permitted. Obviously, safeguards are needed, and Amendment 32 would make it clear that discretionary increases would be possible only where schemes were well funded. Oversight by regulators ensures that employer interests and member protections remain balanced.
My Amendment 41 is about advice. When you are as knowledgeable as the noble Lord, Lord Davies, you do not need the advice, but many pensioners are missing it. This amendment would allow a proportion of pension scheme surplus to be allocated towards funding free—
Lord Davies of Brixton (Lab)
The amendment talks about surpluses, so it is talking specifically about defined benefit schemes. It is not talking about DC schemes because such schemes do not have surpluses. I just want to be clear.
Lord Palmer of Childs Hill (LD)
I thank the noble Lord; it is just that impartial pension advice for members is not always available to everybody. Many savers struggle to navigate pension choices, whether around a consolidation investment strategy or retirement income. Without proper advice, members risk making poor financial decisions that could damage their long-term security. If you are in the business, you have to take the good with the bad, but we would like to give members a bit of advice if the money is available. Free impartial advice is essential to levelling the playing field.
Surpluses in pension schemes should not sit idle or be seen simply as windfall funds. Redirecting a small—I stress “small”—proportion to fund member advice would ensure that surpluses are used in a way that benefits members directly. Amendment 32 would not mandate a fixed share; it would simply give the Secretary of State powers to determine what proportion may be used. This would, I hope, create flexibility and safeguards so that the balance between scheme health and member benefit can be properly managed. Further advice from surpluses reduces the need for members to pay out of pocket and it builds trust that schemes are actively supporting member outcomes beyond the pension pot itself.
Amendment 44, to which my noble friend Lord Thurso referred, would insert a new clause requiring the Secretary of State to publish
“within 12 months … a report on whether the fiduciary duties of trustees of occupational pension schemes should be amended to permit discretionary indexation of pre-1997 accrued rights, where scheme funding allows”.
It aims to explore options for improving outcomes for members of older pension schemes. I maintain that this amendment is needed because many pre-1997 schemes were established before modern indexation rules. Trustees’ current fiduciary duties may limit their ability to avoid discretionary increases, which is what this amendment is about. Members of these schemes may be missing out on pension increases that could be sustainable and beneficial. I will not go on about what the report would do, but there would be many benefits to this new clause. It would provide an evidence-based assessment of whether discretionary indexation can be applied safely; support trustees in making informed decisions for pre-1997 scheme members; and balance members’ interests with financial prudence and regulatory safeguards.
The amendments in this group are clearly going to progress on to Report in some way. Sometime between now and then, we are going to have to try to amalgamate these schemes and take the best bits out of them in order to get, on Report, a final amendment that might have a chance of persuading the Government to take action on these points. Many of the amendments in this group—indeed, all of them—follow the same line, but there needs to be some discipline in trying to get the best out of them all into a final amendment on Report.
Baroness Sherlock (Lab)
I will need to come back to the noble Viscount on that specific point. Obviously, at the moment, a minority of trustees have the power in the scheme rules to release surplus; our changes will broaden that out considerably. If there is a particular subcategory, I will need to come back to the noble Viscount on that. I apologise that I cannot do that now—unless inspiration should hit me in the next few minutes while I am speaking, in which case I will return to the subject when illumination has appeared from somewhere.
It is worth saying a word on trustees because we will keep coming back to this. It was a challenge in the previous group from my noble friend Lord Davies. The starting point is that most trustees are knowledgeable, well equipped and committed to their roles. But there is always room to better support trustees and their capability, especially in a landscape of fewer, larger consolidated pension funds. That is why the Government, on 15 December, issued a consultation on trustees and governance, which, specifically, is asking for feedback on a range of areas to build the evidence base. It wants to look at, for example, how we can get higher technical knowledge and understanding requirements for all trustees; the growth and the use of sole trustees; improving the diversity of trustee boards; how we get members’ voices heard in a world of fewer, bigger schemes; managing conflicts of—
Lord Davies of Brixton (Lab)
Sorry. Corporate trustees are a specific issue. Does the consultation include the particular responsibility of single corporate trustees?
Viscount Thurso (LD)
My Lords, I will speak to my Amendments 34 and 37 and will briefly comment on the other amendments. Quickly, before I do that, I seek to assist the Minister with the question I asked her on the last group. I was written to by people who came together as a small group to protest against the failure of a trustee and an employer to award discretionary increases, contrary to their joint policy of matching inflation, originally published in 1989 and repeated in pensions guides and newsletters over the years. For the last four years, the employer has refused consent to modest discretionary increases recommended by the trustee and supported by the independent actuary. That is the situation I am looking at. I hope that is helpful.
I turn to the current group. Let me say, first, in response to the noble Viscount’s amendment and his Clause 10 stand part notice—as he said, both are probing amendments—broadly speaking, I concur with him. If we had had regulations, draft regulations or just something to look at, an awful lot of these questions would not have needed to be put at this stage. As a matter of principle, I am always in favour of the affirmative procedure, rather than the negative one; I shall leave that there.
I know that the noble Lord, Lord Davies, will speak eloquently to his own amendments in a moment, but they are a bit of a variation on the theme of the ones in my name. My Amendment 34 would, in Clause 10 and at line 23,
“after ‘notified’ insert ‘and consulted’”.
What that would do is to say that the trustees would have not only to notify the members but to consult them. My Amendment 37 is very much along the same lines. It would insert, at the end of proposed new subsection (2B), a new paragraph—paragraph (e)—
“requiring that the trustees are satisfied that it is in the interests of the members that the power to pay surplus is exercised in the manner proposed in relation to a payment before it is made”.
Both amendments seek to explore the relationship between the employer, the members and the trustees.
I have listened to the arguments where it has been put forward that the employer has underwritten the surpluses, almost, and is at the mercy of the trustees. The case that I have put forward shows that, actually, there is often a power imbalance between the members—they are probably at the bottom of the pile—the trustees and the employer. I completely concur that the idea of mandating a response is wrong, but it is open to have regulations that require the trustees both to have regard to and to look at that, so that we reach a situation where members’ interests have at least equal value, in the eyes of the trustees, as the requirements of the employer.
I feel that these amendments are very modest. Who knows what might happen later on, but this stage the amendments are designed to reinforce members’ ability to be consulted and know what is going on.
Lord Davies of Brixton (Lab)
My amendments address how members’ interests can best be represented whenever a release of assets is under consideration.
As the Bill stands, the first members will know about such proposals is when they are a done deal—that is, when the decision has been made by the trustees, having talked to the employer. That is what the Bill says, and that is clearly wrong. There is also nothing in the Bill about any involvement of members in the process, such as consultation. This is obviously unacceptable; they should be involved fully from the start. I support the amendments in this group in the name of the noble Viscount, Lord Thurso.
I would probably oppose Amendment 42 in the name of the noble Baroness, Lady Noakes, but, obviously, I shall wait to hear what she says before coming to a conclusion—although the noble Baroness’s remarks on the previous group gave me the gist of what is proposed. Finally, I shall await my noble friend the Minister’s response to the questions raised by the amendments in the name of the noble Viscount, Lord Younger of Leckie.
My Amendment 36 is relatively straightforward and, I hope, uncontentious. Members need to be told before, not after, a decision is made by the trustees and agreed by the employer. This is a point of principle. Scheme members are not passive recipients of their employers’ largesse; they should be equal partners in a shared endeavour, and they have the right to be involved.
My other two amendments would bring scheme members’ trade unions into the process. A question has been asked a number of times during the passage of the Bill in the Commons: who represents members when a release of assets is proposed? The answer, of course, is their trade unions. This is a matter of fact. Consultation is inherently collective and there is now extensive and detailed legislation on how members are to be represented collectively. This applies here, as it does to all other terms and conditions of employment. I should emphasise that this is a requirement to consult on the employer, not the trustees. It applies to trade unions recognised for any purpose under the standard provisions of employment law.
Amendment 36 is relatively straightforward. It would simply require the employer to inform recognised trade unions at the same time as scheme members of the proposals that it is considering in discussion with trustees to release scheme assets. Amendment 40 would go further; it would require an employer to consult with those recognised trade unions before reaching any agreement with the trustees. The requirement to consult with trade unions about changes in pension arrangements that they sponsor is not a new provision. I am not proposing anything radical or new. Pension law already requires consultation with trade unions in this particular form; it requires them to take place before major changes in employees’ collective arrangements. My case is simply that the decision to release assets is a major change and hence it should be brought within the consultation requirements that are already set out in legislation.
This is all in accordance with Section 259 of the Pensions Act 2004 and the regulations under the Act. These are the Occupational and Personal Pension Schemes (Consultation by Employers and Miscellaneous Amendment) Regulations 2006, that is SI 349 of 2006. These regulations require employers with at least 50 employees to consult with active and prospective scheme members before making major changes—known as listed changes in the legislation—to their pension arrangements.
The key requirements set out in the legislation includes a mandatory consultation period. First, employers must conduct a consultation lasting at least 60 days before a decision is made. Secondly, there must be a spirit of co-operation. Employers and consultees are under a duty to work in the spirit of co-operation and employers must take the views received into account. Thirdly, the affected parties consultation must include active members, those currently building benefits, and prospective members—eligible employees not yet in the scheme. Deferred and pensioner members are generally excluded, which I have always regarded as a shortcoming in the legislation.
The listed changes that currently trigger statutory consultation are: an increase in the normal pension age; closing the scheme to new members; stopping or reducing the future accrual of benefits; ending or reducing the employer’s liability to make contributions; introducing or increasing member contributions; changing final salary benefits to money purchase benefits; and reducing the rate of revaluation or indexation for benefits. It should be noted that this is not just about changes in benefits; it is about changing the financing of the scheme. A release of assets is a change in the financing of a scheme, and so it should be included in the list in these regulations. My amendment would simply direct that regulations should be laid that will add release of assets to the list of these listed changes.
There are consequences under the legislation for employers that fail to comply with it, but the spirit here is one of setting out a process of working together, in order, as far as possible, to reach changes to the scheme that are accepted to both sides of the employment relationship.
Baroness Sherlock (Lab)
My Lords, I am grateful to all noble Lords who have spoken on these amendments to Clause 10. Having previously set out the Government’s policy intent and the context in which these reforms are being brought forward, I start with the clause stand part notice tabled by the noble Viscount, Lord Younger. As he has made clear, it seeks to remove Clause 10 from the Bill as a means of probing the rationale for setting out the conditions attached to surplus release in regulations rather than in the Bill. It is a helpful opportunity to explain the scope and conditions of the powers and why Clause 10 is structured as it is.
The powers in the Bill provide a framework that we think strikes the right balance between scrutiny and practicality, enabling Parliament to oversee policy development while allowing essential regulations to be made in a timely and appropriate way. It clearly sets out the policy decisions and parameters within which the delegated powers must operate. As the noble Viscount has acknowledged, pensions legislation is inherently technical, and much of the practical delivery sits outside government, with schemes, trustees, providers and regulators applying the rules in the real-world conditions. In pensions legislation, it has long been regarded as good lawmaking practice to set clear policy directions and statutory boundaries in primary legislation, while leaving detailed operational rules to regulations, particularly those that can be updated as markets and economic conditions change and scheme structures evolve, so that the system continues to work effectively over time.
In particular, Clause 10 broadly retains the approach taken by the Pensions Act 1995, which sets out overarching conditions for surplus payments in primary legislation while leaving detailed requirements to regulations. New subsection (2B) sets out the requirements that serve to protect members that must be set out in regulations before trustees can pay a surplus to the employer—namely, before a trustee can agree to release surplus, they will be required to receive actuarial certification that the scheme meets a prudent funding threshold, and members must be notified before surplus is released. The funding threshold will be set out in regulations, which we will consult on. We have set out our intention and we have said that we are minded that surplus release will be permitted only where a scheme is fully funded at low dependency. That is a robust and prudent threshold which aligns with the existing rules for scheme funding and aims to ensure that, by the time the scheme is in significant maturity, it is largely independent of the employer.
New subsection (2C) then provides the ability to introduce additional regulations aimed at further enhancing member protection when considered appropriate. Specifically, new subsection (2C)(a) allows flexibility for regulations to be made to introduce further conditions that must be met before making surplus payments. That is intended, for example, if new circumstances arise from unforeseen market conditions. Crucially, as I have said, the Bill ensures that member protection is at the heart of our reforms. Decisions to release surplus remain subject to trustee discretion, taking into account the specific circumstances of the scheme and its employer. Superfunds will be subject to their own regime for profit extraction.
Amendment 37, tabled by the noble Viscount, Lord Thurso, seeks to retain a statutory requirement that any surplus release be in the interests of members. I am glad to have the opportunity to explain our proposed change in this respect. We have heard from a cross-section of industry, including trustees and advisers, that the current legislation, at Section 37(3)(d) of the Pensions Act 1995, requiring that the release of surplus be in the interests of members, is perceived by trustees as a barrier because they are not certain how that test is reconciled with their existing fiduciary duties. We believe that retaining the status quo in the new environment could hamper trustee decision-making. By amending this section, we want 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.
I turn to Amendments 31 and 43, which seek to clarify why the power to make regulations governing the release of surplus is affirmative only on first use. As the Committee may know, currently, only the negative procedure applies to the making of surplus regulations. However, in this Bill, the power to make the initial surplus release regulations is affirmative, giving Parliament the opportunity to review and scrutinise the draft regulations before they are made. We believe that this strikes the appropriate balance. The new regime set out in Clause 10 contains new provisions for the core safeguards of the existing statutory regime; these are aligned with the existing legislation while providing greater flexibility to amend the regime in response to changing market, and other, conditions.
Amendments 35 and 36 seek both to prescribe the ways in which members are notified around surplus release and to require that trade unions representing members also be notified. I regret to say that I am about to disappoint my noble friend Lord Davies again, for which I apologise. The Government have been clear: we will maintain a requirement for trustees to notify members of surplus release as a condition of any payment to the employer. We are confident that the current requirement for three months’ notification to members of the intent to release surplus works well.
However, there are different ways in which surplus will be released to employers and members. Stakeholder feedback indicates that some sponsoring employers would be interested in receiving scheme surplus as a one-off lump sum, but others might be interested in receiving surplus in instalments—once a year for 10 years, say. We want to make sure that the requirements in legislation around the notification of members before surplus release work for all types of surplus release. We would want to consider the relative merits of trustees notifying their members of each payment from the scheme, for example, versus trustees notifying their members of a planned schedule of payments from the scheme over several years. Placing the conditions around notification in regulations will provide an opportunity for the Government to consult and take industry feedback into account, to ensure the right balance between protection for members and flexibility for employers.
I understand the reason behind my noble friend Lord Davies’s amendment, which would require representative trade unions to be notified. They can play an important role in helping members to understand pension changes. However, we are not persuaded of the benefit of an additional requirement on schemes. Members—and, indeed, employers—may well engage with trade unions in relation to surplus payments; we just do not feel that a legislative requirement to do so is warranted. The points about the role of trustees, in relation to acting in the interests of members in these decisions, were well made.
Amendment 34 would require member consultation before surplus is released. I understand the desire of the noble Viscount, Lord Thurso, to ensure that members are protected. The Government’s view is that members absolutely need to be notified in advance, but the key to member protection lies in the duty on scheme trustees to act in their interests. Since trustees must take those interests into account when considering surplus release, we do not think that a legislative requirement to consult is proportionate.
Lord Davies of Brixton (Lab)
Just to be absolutely clear, the three-month notification period relates to the notice of implementation; it is not three months’ notice of the decision being made.
Baroness Sherlock (Lab)
I believe so; if that is not correct, I shall write to my noble friend to correct it. Coming back to his point, the underlying fact is that we believe that the way to protect the interests of members is via the trustees and the statutory protections around trustee decision-making.
I apologise to the noble Viscount, Lord Thurso, as I misunderstood his question in our debate on the previous group. I am really grateful to him for clarifying it; clearly, he could tell that I had misunderstood it. At the moment, when a scheme provides discretionary benefits, the scheme rules will stipulate who makes those decisions. In many cases, that involves both the trustees and the sponsoring employer, as may be the case in what the noble Viscount described.
When considering those discretionary increases, trustees and sponsoring employers have to carefully assess the effect of inflation on members’ benefits. But, as the noble Viscount describes, if it is not agreed, the employer may effectively in some circumstances veto that. We think the big game-changer here is that these changes will give trustees an extra card, because they will then be in a position to be able to put on the table the possibility for surplus being released not to the member via a discretionary increase but to the employer. However, they are the ones who get to decide if that happens, and therefore they are in a position where they suddenly have a card to play. I cannot believe I am following the noble Viscount, Lord Thurso, in using the casino as a metaphor for pensions, which I was determined not to do; I am not sure that that takes us to a good place. But it gives them an extra tool in their toolbox to be able to negotiate with employers, because they are the ones who hold the veto on surplus release. If they do not agree to it, it ain’t going anywhere. So that is what helps in those circumstances.
Lord Davies of Brixton (Lab)
I find myself in some difficulty in speaking to these amendments. First, although I declared my interests as a fellow of the Institute of Actuaries at the beginning of Committee, it is appropriate, in accordance with practice where there is a specific interest involved in the amendment, to declare it again. I am not a practising actuary at the moment, but I could be, and this would bear directly on my ability to earn money.
I support what I think is behind the proposals being made by the noble Baroness, Lady Altmann. We should consider ways of strengthening trustee consideration of the way forward, whatever it is. More specifically, an automatic response to go to annuitisation is clearly wrong. If trustees do not consider the other options, they are not acting properly and are not discharging their fiduciary responsibility. The suggestion is that this is happening too often at the moment.
Broadly speaking, I agree that there has been a rush to buy out, but that has happened for a wide variety of reasons, of which I would suggest that the presence or absence of particular actuarial advice is only a small part. To overemphasise this part without looking at what else is going on is a problem. Trustees should be supported to make better decisions, and part of that process is the actuarial report that they produce from their scheme actuary.
Just to provide a bit of background, we need to understand that actuarial regulation is just a little confusing. We have two regulators for actuaries. There is the institute itself, which is responsible for professional standards—“you should not bring shame on the profession and you should make sure that you know what you are talking about before you provide advice”. All that side of things is handled by the profession itself. Technical standards, such as what should be in a valuation report, are the responsibility of the Financial Reporting Council, a completely separate body that is not part of the actuarial profession. Although there are actuaries involved in the work of the FRC, it is not an actuarial body but an independent body. I will not go into the history, but, for whatever reason, it was decided to take that technical supervision away from the institute and place it with the Financial Reporting Council.
The particular standard referred to here is the technical actuarial standard, or TAS 300. That does not mean that there has been a previous 299; it starts at 300. There is a 100, and there are other numbered standards that come and go. This is the one that relates to advice to trustees, not just for valuation purposes but for calculating what basis the fund should use to calculate transfer values, commutation rates and so on. So there is this technical standard, set by an independent body.
I understand that that standard is controversial, and the noble Baroness, Lady Altmann, reflected some of that controversy in her speech. It would be fair to say that views differ. It is also important to understand that the current edition of TAS 300 was issued after extensive consultation last July and came into effect only on 1 November last year. It is always open to debate what the standard should say. My concern is that that standard is intended for actuaries, to tell them how they should provide actuarial advice to trustees. Its role is not to tell trustees how to behave. The problem, which I recognise, and which has been suggested as a reason for these amendments, is that trustees are not behaving properly—or it could be that they are being ill-advised by actuaries. That is not something that I am going to endorse but, if that is true, there is a disciplinary process under the Financial Reporting Council. Again, that is not part of the actuarial profession; it is a separate disciplinary process for anyone identified as not complying with the TAS. The issue can be raised with the FRC, and it may well be that it should have been raised more often, because that is really the first port of call if you think that the advice is wrong. It is not to put it into a piece of legislation.
I am very sorry to find myself in contention with the noble Baroness but, if trustees need to be regulated, it is not the job of the Financial Reporting Council to do it. It is not its job to tell trustees how to do their job. That is an issue that I am sure that we could debate extensively. I recognise the problem, but I am not convinced that we have been presented with the correct answer.
Lord Fuller (Con)
My Lords, I know that this is a technical amendment, and in the last group I disagreed with the noble Baroness, Lady Altmann, but on this one I totally agree with her analysis, particularly her identification of the groupthink that trustees suffer, bamboozled and pressured by the FCA, TPR and actuaries, and sometimes investment managers, to be overly risk-averse in some of their investments. In particular, there is a drive—it is explained that it is prudential and that the regulations require it, which means that we need to look at the regulations—for pension funds to apply an increasing proportion of their assets to liability-driven investments.
If your scheme happens to be in deficit, these LDIs will anchor you in deficit for the rest of time, because that is how they work. That is wrong, because the trustees have no control over what the interest rate, discount rate or gilt rate might be. They can adjust—plus or minus, in the case of gilts—but, ultimately, liabilities are driven by the gilt rates. They have no control over that, but they do have control over how the assets in their scheme are invested for the greatest return.
However, that is not how their schemes are valued at the triennial, which is valued on the gilt rate. As the noble Baroness, Lady Altmann, said, the value of their assets is depressed by virtue of being in a scheme. As people buy out and are forced to buy out—Amendment 33A contemplates what happens when you approach a buyout—schemes are being mugged. Members are being short-changed by this artificial diminution in the value of the assets, which at the moment pass into the hands of an insurance company, as the noble Baroness, Lady Altmann, said. No longer impeded, weighed down or anchored from being in a scheme, they can be let rip. The uplift happens quickly, and there is an immediate profit to the insurance company.
It is perverse that the entire regulatory advisory industry is mandating schemes to go into overly prudent investment products, almost suckering them down so that they have to pay a premium to be bought out, and all the profits go somewhere else. That is not prudence; it is short-changing the members of the schemes and diverting huge amounts of productive capital for the engine of our economy and the private businesses that generate wealth and pay taxes.
Regarding Amendment 33A, it is really important that trustees have imagination and are encouraged to think as widely as they possibly can, asking, “What does this mean? Are we in the appropriate asset mix? Should we be rammed into LDIs because we are chasing a deficit, or should we be invested in growth to pay benefits for members?” That is the dilemma, and this amendment shines a light on it almost for the first time in the Bill. Trustees in as many schemes as I can think of are being misdirected, ostensibly to reduce risks. But they are not reducing risks; they are reducing the sustainability of their schemes and their ability to pay for today’s members, including, most importantly, the youngest members of their scheme, who have the longest to go to retirement. Following the dismal, dead hand of these regulators is prejudicing the ability of these schemes to pay out for their youngest members in 20, 30 or 40 years’ time.
I notice that the noble Lord, Lord Willetts, is not in his place, but he made this point in a previous group. This is the generational problem that we have, between the eldest and the youngest people in the scheme. We need to strengthen and empower our trustees to play their roles simply and straightforwardly and not as though they are not competent or do not feel confident to resist the so-called advice they are getting from regulators, which are acting in groupthink and not in the scheme’s best interest, or the interests of either members or companies.
Pension Schemes Bill
Lord Davies of Brixton ExcerptsMonday 12th January 2026
(3 weeks, 2 days ago)
Grand CommitteeRead Full debate Pension Schemes Bill 2024-26 View all Pension Schemes Bill 2024-26 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 152-I(b) Amendments for Grand Committee (Supplementary to the Marshalled List) - (12 Jan 2026)
Viscount Younger of Leckie (Con)
My Lords, it is a privilege to open today’s debate and to begin what I am sure will be five engaging and constructive days of scrutiny on this Bill in Committee. The proposed new purpose clause, in my name and those of my noble friend Lady Stedman-Scott and the noble Baroness, Lady Bowles, is not an attempt to rehearse the arguments advanced at Second Reading. Rather, it is intended to address a specific issue arising from the way in which the Bill has been framed and from the legislative approach that the Government have chosen to adopt.
The debate I seek to initiate is a principled one about legislative clarity and certainty, particularly in the context of what is, by any reasonable definition, a framework Bill. We believe that the Bill, as currently drafted, is light on detail and relies heavily on delegated powers. This has inevitably left your Lordships debating intentions, aspirations and hypothetical outcomes, rather than the Government’s settled policy. In those circumstances, is it not all the more important that Parliament is clear on the face of the legislation about what it actually intends to achieve?
The purpose clause amendment therefore intends to establish an overarching statement of intent, setting out the objectives against which the Bill and the regulations made under it should be understood and scrutinised. Where detailed provision is deferred to secondary legislation, such a statement provides Parliament, regulators and stakeholders with a clear point of reference. Without it, how are we to assess whether the powers being taken are exercised consistently with the will of Parliament, rather than merely within the scope of ministerial discretion?
More broadly, the amendment invites the House to reflect on whether Parliament is being asked to confer wide-ranging powers without sufficient clarity as to how they are intended to be used. At what point does flexibility begin to shade into uncertainty? How can proper legislative certainty be maintained when substantive policy choices are deferred, potentially amended repeatedly and then removed from direct parliamentary scrutiny? If there were an alternative procedural route that allowed the House to engage meaningfully with these questions, we would of course be willing to consider it. However, in the absence of such a mechanism, is it not reasonable to seek to debate these matters through a proposed new purpose clause, which would allow the House to test the Government’s intent within the normal amending stages of the Bill?
This concern is particularly acute in relation to value for money. Much of what this legislation seeks to achieve will ultimately stand or fall on the effectiveness of the value-for-money framework. Yet the provisions before us are thin and largely skeletal, despite the central role that the framework is expected to play. How can Parliament properly assess the merits of this approach when so much turns on detail that has yet to be set out?
I say at the outset that we are supportive of the value-for-money framework in principle, but its success will depend almost entirely on the detail of its design, the consistency of its application across schemes and the robustness of its enforcement. Without greater clarity on these points, how are trustees, regulators and members to understand the standards against which they will be judged?
That leads me to a wider question about the long-term purpose of the Bill. How do the Government envisage the pensions landscape to look like in 10, 15 or even 20 years’ time? Is the objective consolidation, greater scale, improved outcomes for savers or some combination of all three? How will we know whether this legislation has succeeded in delivering that vision?
We wish to engage not only with the immediate legislative mechanisms but with the broader strategic direction that underpins them. We fully accept that legislation must allow Ministers a degree of flexibility to respond to changing circumstances, but flexibility without a clear, articulated destination risks leaving Parliament and the industry uncertain about the direction of travel. Is it unreasonable to ask for the House to be told not only what powers are being taken but to what end they are intended to be used? It is in that spirit that this purpose clause has been tabled and I very much look forward to the debate that I hope it will provoke.
I wish to return briefly to the question of mandation, which, although I have not directly mentioned it, is an underlying issue in the Bill. It illustrates precisely why questions of purpose, process and limitation matter so greatly in the context of a framework Bill of this kind. We will of course turn to this in greater detail later in Committee but, as we are discussing the purpose of the Bill in this clause, it would be remiss of me not to mention it here at the outset as one of the most contentious provisions in the Bill—as we heard, broadly around the House, at Second Reading.
As drafted, the Bill establishes a broad enabling framework but leaves a great deal of substantive policy to be determined later through regulation. That approach inevitably creates uncertainty. It also places a heightened responsibility on Parliament to ensure that any powers taken are clearly bounded, carefully justified and firmly anchored to a stated purpose. In that context, we do not consider there to be a compelling case that asset allocation mandates are necessary to increase productive investment in the United Kingdom. Indeed, mandation risks cutting across the fundamental principle that investment decisions should be taken in the best interests of savers by trustees and providers who are properly accountable for the outcomes. I am sure that we will hear more about these arguments in Committee.
When the Bill itself provides only a skeletal framework, the absence of clarity around how such powers might be used becomes all the more concerning. If any future Government were ever minded to pursue mandation, it is essential that any such power be tightly limited, that savers’ outcomes are clearly protected and that asset allocation decisions are insulated as far as possible from political cycles and short-term pressures. Investment decisions should remain with those charged with fiduciary responsibility and not be directed by Ministers, however well intentioned. Those safeguards cannot simply be assumed; in a framework Bill, they must be explicit.
Moreover, the case for mandation is further weakened by the existence of credible and constructive alternative routes to unlocking greater levels of UK investment. Industry participants, including Phoenix Group, have identified a number of areas where policy reform could make a meaningful difference without recourse to compulsion. Government institutions such as the National Wealth Fund and Great British Energy could play a significant role by aligning guarantee products with insurers’ matching adjustment requirements, by engaging institutional investors earlier so that projects are structured to meet long-term investment needs and by continuing collaboration with the ABI Investment Delivery Forum to deliver investable infrastructure pipelines.
Similarly, the Mansion House Accord, building on the 2023 compact, has already driven tangible industry action. In our view, the priority now should be delivery, rather than the creation of new and potentially far-reaching powers. That includes implementing a robust value-for-money framework with standardised metrics; introducing minimum default fund size requirements, whether £25 billion or £10 billion, with a credible growth plan; and aligning the defined contribution charge cap with the Pensions Regulator’s approach by excluding performance fees where appropriate.
More broadly still, stronger capital markets are essential if the United Kingdom is to attract both domestic and international investment. This includes supporting the work of the Capital Markets Industry Taskforce, exploring measures to foster a stronger home bias in UK equities, considering whether stamp duty on share transactions is acting as a drag on competitiveness, and examining targeted tax incentives for pension fund investment in UK infrastructure. Ultimately, rather than mandating investment, policy should focus on understanding why UK investment has lagged. That requires serious engagement with questions of market structure, regulatory design, the quality of investment pipelines and the underlying risk-return characteristics of UK assets. Mandation risks treating the symptoms rather than addressing the causes.
I look forward to the Minister’s response. I make no apology for laying out certain aspects that I believe fit with the purpose of the Bill. However, as I said at the outset, I hope that we have a productive and interesting Committee. I beg to move.
Lord Davies of Brixton (Lab)
It is a pleasure to be here. Although for a while I was feeling a bit lonely, I very much welcome my noble friends; what we do not make up in numbers, I am sure my friends will more than make up for in the quality of their contributions. I declare an interest as a fellow of the Institute and Faculty of Actuaries.
It is worth at this stage spelling out that I have spent a lifetime advising people about pensions. I was the TUC’s pensions officer for a number of years. I was also a partner in a leading firm of consulting actuaries, and I worked for a number of years with a scheme actuaries certificate undertaking scheme valuations. In terms of sheer experience, I can fairly say that this is unique to noble Members of this House. I will not go on at length on future occasions, except when it is directly relevant.
The noble Viscount, Lord Younger of Leckie, declared his intention to avoid repeating a Second Reading speech—it is arguable as to whether he achieved that intention—but, in a sense, I welcome the opportunity to look at the Bill as a whole. While I support the Bill and I support my noble friends—there are some really good measures in here—the text underlying the opposition amendment suggests that we have a pensions system in chronically bad condition.
It suggests that returns are inadequate, that the system is fragmented and that it lacks transparency, with people unable to assess what they are getting. It provides inadequate communications. It is inconsistent across the different forms of provision. It prevents, or makes hard, innovative and flexible solutions to the problems that are faced. It needs to provide greater clarity for employers. It currently does not achieve responsible and innovative use of pension surpluses. To me, this suggests a system at risk of chronic failure.
To be honest, I accept those criticisms because underlying this system is the personal pension revolution introduced by the Conservative Government 40 years ago, which has proved to be unfit for purpose. We are having to make all these changes because of the failure of the system that the Conservative Government introduced. We need these changes because personal pensions did not work out. Collective provision is the answer to decent pension provision, and the Bill supports and develops collective provision and moves across this idea that everyone can have their own pot which they look after for themselves. I oppose the amendment and look forward to further discussions on the individual issues as they arise.
Lord Fuller (Con)
My Lords, it is always a pleasure to follow the noble Lord, Lord Davies of Brixton. He reminds me of that old joke about the dinner of actuaries where they are all complaining that everyone is living longer and it is getting worse.
I agree with this purpose clause, although I am surprised that it does not establish the balance between risk and reward, where pensions help people build secure futures by taking appropriate qualified risks. The pensions industry seems obsessed with risk minimisation, but without any form of risk there can be no reward; even cash is at risk from inflation.
The success of this Bill and why we need a purpose clause is to be grounded in how it makes it easier for people to take personal responsibility, to save for their futures, themselves and their families and to make their savings secure while permitting appropriate and manageable returns and providing risk capital to grow the economy. Inspiring people to save for their future is important, and pensions are long-term savings plans. Long-term returns dynamised through dividends, and boosted by employer contributions in many cases, are the best way to set yourselves up for later life.
Baroness Bowles of Berkhamsted (LD)
My Lords, I share some of the concerns that have been expressed. I added my name to Amendment 6, and I could have added it to Amendment 5 as well. Before I go further, as it is an early part of discussing this Bill, I should say that I am a great supporter of the notion that there should be investment in productive assets that support the UK economy. Although I am not that heavy on mandation, if anything I lean in that direction quite a lot. It is obviously done through advisers, and maybe that is one reason for being concerned about advisers—perhaps they have pushed it too much the other way in times past. Noble Lords can take it as background that I am very supportive.
I am concerned about too much forcing of particular kinds of investment, and restricting the routes to those investments or the resistance of the opportunity if the trustees think that it is not the right thing to do. That is why I have some support for Amendments 5 and 6, because I think they may go too far. One of the good things about Clause 2(3) and (4) is that they are optional. However, it still hints at a lot of things that could be done.
I am concerned about any kind of dictation on which advisers can be used, because they have been very powerful. If there is any control over which advisers are used, that is another way of controlling the fund. Given the obligations of trustees to consult advisers, and the liabilities attached to that, they have to remain independent. That is the direction that I am coming from; therefore, I do not want the Bill to give powers that could go too far. That is why I added my name to Amendment 6, and why I have some sort of regard for the content of Amendment 5 around the investment opportunities.
Lord Davies of Brixton (Lab)
This group is about asset pools in the Local Government Pension Scheme. I had not intended to intervene on this group, but I want to comment on the remarks made by the noble Viscount, Lord Younger, in introducing this group of amendments on the Local Government Pension Scheme. I am relatively agnostic about asset pools. I am not sure that I am totally convinced by the Government’s line that big is necessarily beautiful, but I am open to that debate.
In introducing this group, the noble Viscount set it in the context of a large group of amendments introduced on much wider issues around the Local Government Pension Scheme than were originally expected—it was really just about investment in the Local Government Pension Scheme—and at a very late stage. It makes no difference to me personally, but fundamental questioning of the structure, running and management of the Local Government Pension Scheme was introduced at such short notice; we found about it only on Thursday or Friday. I can live with that, but I think that it was a little unfair to the people working in and running the scheme suddenly to produce this level of uncertainty. That was unwise. When you want to discuss these things, you start talking to the people involved first, but it is my understanding that it came out of the blue and everyone was totally surprised. Obviously, the issue was always there for discussion, so the fact that it has come up is not a surprise, but doing things at this moment and in this way was unfortunate and is causing problems for those trying to provide the pensions.
I believe that the fundamental premise introduced by the noble Viscount is wrong. The Local Government Pension Scheme is a notable success. Rather than setting up inquiries to discover what went wrong, we should be inquiring about what it got right, because it provides good pensions for a large number of people providing essential services. The average pension in the Local Government Pension Scheme is £5,000; that is because the scheme provides pensions mainly for people on low pay. It provides good pensions for people—often, for women with part-time jobs. It does so in a way whereby, in the forthcoming valuations—as I will expand on and discuss at greater length when we get on to the eighth group of amendments, because that is where the substantive discussion will take place—it faces a better record than private sector occupational pension schemes. We should be looking at its success and not, as the noble Viscount argued, the difficulties and failures.
Lord Fuller (Con)
My Lords, once again, I follow the noble Lord, Lord Davies of Brixton. I wish, perhaps uncharacteristically, to associate myself with many of his comments. I support the thrust of Amendment 2, and offer wider support for the other amendments in this group.
My qualifications to speak on this Bill as far as the LGPS elements are concerned is that I led a local authority for 20 years and have been a member of the Norfolk Pension Fund’s Pensions Committee since 2007. I have also been a member of the Local Government Pension Scheme’s advisory board since its inception in 2014. I am a past member of the fire service scheme’s advisory board, as well as a trustee of a number of private schemes. I also benefit from my own SSIP.
Today is about the LGPS. It is different, because not many of the public sector schemes have money put aside for their members’ retirements—although I accept that the scheme for MPs is one of them. In aggregate, the LGPS comprises 89 separate schemes cast throughout the entirety of the four home nations. Collectively, the 2024 scheme census reports a total of 6.7 million members, a third of whom are, directionally speaking, active; a third of whom are deferred; and a third of whom are actually in payment. In 2024, its total assets under management were worth £390 billion; it is much more than that now. These things change but, by whatever measure, the LGPS is the world’s fourth-largest or fifth-largest pension scheme.
When I came on to the Norfolk board in 2007, assets under management were £1.8 billion. They are now more than £6 billion. I echo the comment of the noble Lord, Lord Davies, that if only the UK economy had risen in that proportion. The LGPS delivers significant value. The typical member is a 47 year-old woman earning about £18,000 a year, for whom the pension is, as the noble Lord, Lord Davies, said, about £5,000. It is incredibly efficient. Operational costs are about half those of typical unfunded schemes. In the Norfolk scheme, of which I am a member, the cost per member is less than £20 per head. I accept that other schemes have costs higher than that, but it is an enviable record. We have saved for our future, but you would not know any of this from the thrust of the Bill and its overbearing tinkering.
What is the problem to be solved here? After some difficult times when interest rates were low, most schemes are now fully funded. It is a British success story that will be undermined by fettering the independence of schemes to make the best long-term investment decisions for their members and local taxpayers, muddling accountabilities by divorcing assets from liabilities and introducing new conflicts of interest. That cannot be right. The success has been delivered despite being buffeted by complications such as McCloud, the pre-2015 and post-2015 schemes, GMP, the rule of 75, dashboards, changing rules on inheritance and divorce and all the other things that happen when you have the best interests of 6.7 million workers in mind. The truth is that the LGPS is a million miles away from the fat cattery that the popular newspapers would have you believe.
That brings me on to the substance of Amendment 2. I have the greatest concerns that the fiduciary duty contemplated to members in this Bill, fairness to the taxpayer and ham-fisted interference from a merry-go-round of Local Government Finance Ministers will weaken this jewel in our economic crown. Taken together, subsections (2) to (8) promote the notion that the government nanny knows best, with broad powers down to the level of detail to determine the fine structure of the pooled schemes. This approach has already damaged the scheme for no good reason. The exemplar ACCESS band has been told to disband. It was doing a good job. With nearly £40 billion-worth of assets under management, it rented the best globally viewed FCA-qualified professionals in the City of London, one of the world’s top three financial centres. Now it is being forced to join a pool of other authorities headquartered miles away in the provinces, miles away from the cut and thrust and that leading intellectual property. There is a provision in subsection (7) that these pools should take steps to get FCA accreditation—I suppose we should be grateful for that—but these pools have no business even being on the battlefield until they are FCA qualified. Thus is the muddle of this Bill. In essence, this enforced uniformity means that star strikers have been replaced by subs from the reserve team. A global success story has been weakened with the risk of lower returns for members.
Moving on, this Bill talks about local government members, but the scheme is not about just councils. In the Norfolk scheme, which I know best, there are eight principal councils, but we now have more than 500 sponsoring employers—parish councils, care homes, catering companies, youth and social workers, classroom assistants and charities. Each has different scale, covenant strength and longevity. It is complex. Yet ministerial interference wants to shove them all into a one-size scheme that cannot fit all. In subsection (5) we see touching faith in the judgment of the experts and regulators who forced private schemes into LDIs and ruined them. I do not know why the Pensions Regulator and GAD are not on the Government’s list. I suppose we should be grateful that they are not. This whole Bill promulgates pensions groupthink on the altar of reduced risk and lower returns.
I will deal with Amendment 5 later because it talks about investment and there is a later group for that. I have heard the Minister say that bigger is better. Here again, I align myself with the noble Lord, Lord Davies. It is the thrust and the theme of this Bill more widely. Indeed, I heard the noble Baroness at the Dispatch Box lionise the Ontario teachers’ scheme in the week that it was rinsed for £1 billion in the collapse of Thames Water.
We see in Clause 2 that there will be directions as to what things can be invested in. When they tried that in Sweden, the public schemes lost another £1 billion in the Northvolt disaster, where virtue-signalling political investment directions made the members and taxpayers poorer. The harsh lesson is that the schemes become the plaything of meddlesome Ministers to require or prohibit, or to opine on lofty ideas, but without the responsibility or accountability of paying out. It is wrong.
Lord Davies of Brixton (Lab)
I am still mystified as to why Amendment 220 is not included in this group. It is left bereft, right at the end of the Marshalled List. Is there a reason?
Lord Sharkey (LD)
If the noble Lord is asking why it is there, I am afraid I will have to plead the Public Bill Office.
Member’s explanatory statement
This is a probing amendment that seeks to explore how and to what extent LGPS assets might be used to provide social housing as an investment.
Lord Davies of Brixton (Lab)
I emphasise that this is not about mandation. Mandation is a big issue, but this is not about that; it is about the possible ways in which Local Government Pension Scheme assets could be invested. It is a probing amendment and I am sure that it is not word perfect in achieving its objective.
It arises under subsection (4) of this clause. It mentions various issues with how the strategy that is set out should be implemented. It is a probing amendment that seeks to explore how, and to what extent, Local Government Pension Scheme assets might be used to provide social housing as an investment. The oddity about this debate is that I am sure we all share the belief—tell me if I am wrong—that housing is an ideal investment for a pension fund. What I want to know from the Government is the extent to which that will be possible within the structure being established by this Bill.
I start with the fund, which is a long-term defined benefit pension scheme with inflation-linked liabilities. Social housing assets provide long-dated stable income streams that closely match this profile, so the sheer logic of these funds investing in local housing is clear. This issue has been debated extensively, within the relevant field, among the think tanks and so on that support local authorities and are interested in the investments of the Local Government Pension Scheme. For example, a think tank called Localis produced a report recommending that council pension assets should be a funding solution to the UK’s affordable housing crisis; that issue is widely discussed and widely supported.
Of course, that has already happened and is already happening. The London CIV has a substantial investment on behalf of the London pool of investments in social housing. I refer to social housing; personally, I have a preference for council housing, but the issue is broader and includes all forms of social housing. For example, the head of real estate at the London CIV says:
“Our UK Housing Fund is designed to help increase the supply of good quality affordable housing while delivering income-driven returns to our Partner Funds”.
Again, in the heart of the industry and the sector, the value of this approach is strongly supported.
More specifically, are funds investing in local housing? They might be investing in housing, but it could be anywhere. However, the synergy with a local fund investing in local housing has a massive attraction in terms of both the councils involved and the members of a scheme seeing how their funds are being invested in the local community. That is a very attractive perspective on how the funds should be decided.
At the same time—this point does not need spelling out—we face a severe housing crisis. There is a need for extensive housebuilding. We have the resources and the need, so why do we not just get on and do it? Council pension funds are, by their nature, patient, long-term investments; that is such a good match for housing delivery. Of course, it is accepted, from the number of funds that have already gone this way, that the fiduciary responsibility is suitable. The committees managing these funds see that investing in housing matches their fiduciary responsibility.
Everyone agrees that there is a great deal of synergy here. Local pension schemes investing in social housing is financially prudent and low-risk, provides a long-term strategy and delivers clear public value. What is there not to like? Can my noble friend the Minister assure the Committee that this synergy will be recognised in the forthcoming regulations and the accompanying statutory guidance?
We are debating this matter in terms of the Bill here, but, as the previous debate made clear, it is the regulations that count. The regulations that will govern how these pools can invest are currently being discussed—an extensive consultation is taking place—but, alongside that, is a closed consultation on the statutory guidance that will accompany the regulations. There may be a debate as to why it is not a public consultation on the statutory guidance, because the two things—the regulations and the guidance—mash together closely.
The problem is that the draft statutory guidance limits the extent to which local funds can set requirements on the actual decisions that will be taken by the pools. I am getting into the detailed structure of how the administering authorities and the investment pools will work together. The point relates generally to all forms of local investment but it is particularly acute in this area, where we are talking about building houses for local people. More specifically, does the proposed pooling framework act as a potential barrier to Local Government Pension Scheme investment in social housing?
There is a broader, more general issue here; I am gear-shifting. The specific issue is whether the pooling arrangements interfere with local investments, particularly in housing, but there is the general issue of whether administering authorities—local councils, in effect, for these purposes—can pass their ESG considerations, for example, on to the pooling arrangements. We need to be clear at this stage. I have raised this issue specifically in relation to housing—it would be good to get a clear answer on that—but there is a wider point around the other ways in which these funds should be investing in the local community. Are the new structures going to stop that happening in practice?
On the other amendments in this group, I think that I agree with Amendment 9, but I will listen to my noble friend the Minister’s response on it. I look forward to hearing the reasons for Amendment 10; I do not understand it, but I shall listen carefully. I do not really understand Amendment 11 either, so, again, I look forward to the explanation from the noble Viscount. In the meantime, I beg to move the amendment standing in my name.
Baroness Warwick of Undercliffe (Lab)
My Lords, I have no extant interests to declare—my interest in pension schemes is in the past—but I have considerable sympathy with my noble friend Lord Davies’s Amendment 7.
We suffer from chronic underinvestment in genuinely affordable and social housing, which is undermining the social fabric of this country and limiting the opportunity for the growth that we so badly need. The Government have vowed to build 1.5 million homes by the end of this Parliament, with a longer-term aim of resolving the housing crisis; other Governments have attempted to do the same. The Government have already committed substantial sums towards that aim, but demands on public funding are increasing and more resources will clearly be needed to deliver it.
I had a particular interest in housing associations in the past. These raise private debt to put alongside public grant to fund social housebuilding, and currently have more than £130 billion of debt facilities in place. The social housing sector is a great example of harnessing public and private investment to drive economic growth and build the homes that we need. Net additional dwelling figures for the 2024-25 financial year showed that 208,600 homes were added to England’s stock—well short of the 300,000 homes a year needed to meet the Government’s target of 1.5 million homes by the end of this Parliament. With the right funding, investment and financial capacity in place, social and affordable housing can play a key role in boosting supply and meeting that ambitious homes target.
There is a general recognition of the need to increase institutional investment in the UK and that pension schemes, with their long-term characteristics, could and should be part of that solution. This part of the Bill refers specifically to the LGPS. The Chancellor has already cited the LGPS as a means of achieving that necessary level of investment. In fact, several LGPS funds already have a strong track record of co-investment in affordable housing, and that potential needs to be maximised. I hope that the Government will ensure that all large pension schemes have the right incentives and strategic tools, coupled with an effective regulatory regime, to provide returns to the scheme while protecting scheme members’ interests and ensuring enduring social impact.
Lord Katz (Lab)
I could not have put it better myself. We have to be careful in regarding ESG as fashionable politics, inserting itself into a fashionable investment space. We have to be careful not to throw the baby out with the bathwater and to really appreciate that there are good reasons why certain investments are more popular and investments in other areas are being shunned. There are trends in industry and society as to what products and classes of investment are popular. Sometimes, we can overthink these things.
I am pleased that the noble Viscount, Lord Thurso, popped up because I was just about to address his question about the Bill preventing funds setting targets on local investment, on this theme. I hope this answers his question: they must set a target, but it can be any value that the fund considers appropriate. They retain that element of flexibility, which I hope is helpful.
Regarding Amendment 9, the Government will require some administering authorities to report on their local investments, including the total investment, and on the impact of investments, in their annual reports through guidance. We consider that Amendment 9 would be an unnecessary duplication of a requirement that was already set out in guidance and in regulations. We think that it would not add anything to the Bill, as that regulation is already good practice—it is already there.
Amendment 12, spoken to by noble Baronesses, Lady Bowles and Lady Altmann, seeks to expand the definition of local investments beyond stretching point: it could mean investments for the benefit of persons living or working in any of the administering authorities’ local areas. Our fear here is that the amendment would, in effect, break the definition of local investment, as it could mean any investment in England and Wales. We contend that local investment, as it stands, has a broad definition, as it can refer to investments that have measurable beneficial impact for people living or working in areas local to, or in the region of, the administering authority, or of its pool partner administering authorities. As a consequence, this is broad enough to capture an appropriately wide geographic range while ensuring that there are still benefits for the local area.
To ensure a clear and firm trajectory to consolidation and benefits at scale for the scheme as a whole, along with the assurance I hope I have provided to the noble Lords in discussing these amendments, I respectfully ask my noble friend Lord Davies to withdraw his amendment.
Lord Davies of Brixton (Lab)
I thank my noble friend the Minister for his reply. As I made clear, my amendment was not about mandation or compulsion but the ability for local authority funds to invest in ways which are seen as socially beneficial. There was general agreement about the synergy, as I put it, between investing in social housing and the investment needs of local authority funds. The Minister was clear that it should not be a barrier, but, as the regulations are still being discussed, and as the statutory guidance has not been agreed yet, this is a moving feast. I hope that, at some stage, we will be able to get a specific statement on the ability of funds to invest in housing, and in the other ways which have been suggested. I beg leave to withdraw the amendment.
Lord Davies of Brixton (Lab)
This is really a debate by proxy on Section 40 and new Section 28C; I am sure that we can all look forward to a repeat of this discussion.
I am not against mandation in principle; it is entirely reasonable for a Government to adopt that approach. What worries me here is that, for some reason, they are putting investment classes into statute. That is just wrong. The point here is broader than the one just made by the noble Baronesses. To pick out sectors of investment, the Government are giving their imprimatur to these particular classes of investment; however, they will go wrong at some stage, and the Government will be on the hook for having advocated for them. I am against having any of these references in the Bill. I do not want to see anything added; I want them to be taken out.
Lord Fuller (Con)
My Lords, now I am really worried—every time I have followed the noble Lord, Lord Davies of Brixton, I have tried to amplify the points he has made.
I congratulate the noble Baroness, Lady Bowles, on her masterful exposition of a technical piece of detail; she brought it down to the ground and made it alive. She put her finger on it when many of us have not been able to put our finger on what makes us so uncomfortable about the Bill. We know that it is not right. When you get meddlesome Ministers fiddling around in stuff where they do not really know what they are doing, there is not just co-operation but—as the noble Baroness exposed—a connivance and a cartel. She explained how those two things have led to conflicts of interest; there will be a lot of Cs in the words I am about to use. It is anti-competitive, and it has restricted choice.
The noble Baroness has wedged open the door because, later on in the Bill, there are provisions—I will not defer to them too much now—for the existing operators to lock out new entrants. I was instinctively uncomfortable with that but, now, I am worried because there seems to be a guiding hand here to reduce choice, stifle innovation and damage the reputation of the City. I do not think that that was purposeful, but this is what happens when you get a Bill that is so overly complicated and takes people away from saving for their long-term retirement.
I nearly feel sorry for the noble Lord, Lord Katz, because I have never seen such an evisceration. I am sure he is going to defend it and do the best he can. But what the noble Baroness, Lady Bowles, has shown is that it is rather like the Chancellor, who now says she had no idea what was really happening when she put the rates on the pubs. It was a mistake, and she did not have all the information to hand. While I accept that the noble Lord, Lord Davies, has said we will come back to this on another day, I thank the noble Baroness, Lady Bowles, because she has given an opportunity—a breathing space or an air gap—for the Government to now go back to look at this in more detail.
The noble Baroness, Lady Altmann, also laid out the import of this amendment when she said that one-third of all the FTSE 350 is engaged in this. I expect the Minister in winding to say, for a third time, that growth is the number one priority of this Government. Let us hope he does say that because, if he does, he will either accept this amendment here and now, or give an undertaking that, at some stage before we get to this in the main part of the debate, it will be accepted and we can move on.
It is not just casting a shadow over the LGPS and the parts of Yorkshire which are disinvesting; it is accidentally casting a shadow over the City of London, which is the world’s second or third largest financial centre. It must be stopped. I think the noble Baroness, Lady Bowles, has done the Committee and our nation a great service in the last half an hour, and she is to be congratulated for it.
Pension Schemes Bill
Lord Davies of Brixton ExcerptsThursday 18th December 2025
(1 month, 2 weeks ago)
Lords ChamberRead Full debate Pension Schemes Bill 2024-26 View all Pension Schemes Bill 2024-26 Debates Read Hansard Text Watch Debate Read Debate Ministerial Extracts Amendment Paper: Consideration of Bill Amendments as at 3 December 2025 - large print - (3 Dec 2025)
Lord Davies of Brixton (Lab)
It is always a pleasure to follow the noble Baroness, Lady Noakes; I still worry on those occasions when I find myself agreeing with what she says. No doubt we will have interesting debates in Committee.
It is a real pleasure to take part in this debate, which is a perfect start to the festive season. I declare my interest as recorded in the register as a fellow of the Institute and Faculty of Actuaries, and I look forward to the maiden speech of the noble Baroness, Lady White of Tufnell Park.
I thank all the individuals and organisations that have written to me about the Bill. They have raised too many issues to deal with them all today, but I and others will seek to raise them in Committee.
I welcome this Bill. It is the first leg of the route to better pensions that was set out in the Government’s pensions road map. It seeks to make existing provision work more effectively and to ensure that people derive the maximum benefit from their pension savings. These objectives are to be welcomed. The second leg of this journey will be the outcome of the Pensions Commission. Part 2 will address the adequacy of retirement incomes and the fairness of a system that currently contains persistent inequalities. I welcome my noble friend the Minister repeating that it will look at state as well as private pensions.
It is worth pointing out, particularly given the welcome presence of the noble Lord, Lord Willetts—though he is not in his place—that this Bill marks the effective end of personal pensions and sets out how we can move to a better system of collective provision, leading to improved, fairer and appropriate outcomes for members.
Taking the various proposals in turn, the Bill takes important steps to remove inefficiencies in the current system. They include the consolidation of small dormant pension pots, contractual overrides for FCA-regulated schemes and the resolution of the issues that have arisen from the Virgin Media judgment through the validation of certain amendments. Each of these changes affects individual member’s rights without their active involvement and therefore must be handled with care, supported by appropriate regulation and professional oversight. These measures will require careful scrutiny in Committee.
Next, the Bill requires defined contribution schemes to offer default retirement arrangements for members. I welcome this initiative and consider it to be the most significant part of the Bill—potentially, as it is still unclear how these arrangements will operate in practice. The Bill provides broad regulation-making powers. We have now had the helpful report from the Delegated Powers and Regulatory Reform Committee, but the details, as the committee emphasises, will depend on what is in the regulations. I therefore hope that we will be able to explore these issues in Committee and identify the main parameters that will apply to these default arrangements.
Turning to the value-for-money proposals, I have some reservations about what they can achieve. Greater and clearer disclosure based on defined parameters is undoubtedly desirable. However, value for money is not a simple or uniform concept. It varies significantly from individual to individual, reflecting different circumstances, attitudes to risk and personal needs. The problem is that there is no simple metric that can adequately capture this diversity. While charges are relatively straightforward to identify and compare, investment returns are inherently uncertain and can be assessed only by reference to the past. Beyond these factors, value for money is also shaped by the quality of the scheme administration, the level of service provided to members and the effectiveness of communication and support. Crucially, it also depends on how benefits are adopted and delivered and whether they meet differing members’ needs. Bringing these factors together, deciding how to weight them and reaching meaningful conclusions of value to members is highly complex. Therefore, while everyone is in favour of the concept of value for money—no one favours its opposite—its practical delivery is far more challenging than the Bill appears to acknowledge. The fear is that the process will simply end as a justification for making higher charges and hence lower benefits.
As a number of previous speakers have explained, the Bill contains provisions relating to pension scheme investments, which the Government consider a central element of the Bill. Other noble Lords have addressed, and will address, this in some detail, but I will make a couple of points.
I have no objection in principle to mandation, unlike other speakers. However, it is very important that the Government understand the implications of directing how members’ money is invested. Doing so carries responsibilities; this is where I found myself agreeing with the noble Baroness, Lady Noakes. I do not think that that aspect has been sufficiently recognised by the Government. I am also concerned, as other Members have mentioned, about the provisions that would be inserted into the Pensions Act 2008 by Clause 40 that refer to specific classes of investment that will be the subject of mandation. I do not believe that this belongs in the Bill.
I have a general concern about the Government in effect providing investment guidance—so much can go wrong—but my particular concern is the appearance of private equity in that clause. Private equity has a mixed performance record and presents significant liquidity and transparency challenges for pension provision. Where members have pension rights, illiquidity raises a question about who ultimately carries the risk that is inevitably involved: is it the member, the scheme or other members? I think the point was made by the noble Lord, Lord Vaux of Harrowden.
There are, of course, other issues that require careful consideration, alongside broader concerns, such as climate and systemic risk. I am sure these will be touched on by other Members.
I turn to my two principal concerns about the provisions in the Bill: first, the provisions relating to the release of surplus, and secondly, the provision for pension increases where no statutory guarantee currently exists. On the release of surplus, ministerial Statements have suggested clearly that members are intended to share where surplus is released—I have a series of quotes, but I am running out of time. If that is the case then this objective should be set out clearly in the Bill. This is particularly important as there is a requirement under the existing legislation that the release of surplus should be for members’ benefits, and that is being removed. The Government justify this on the grounds that trustees’ responsibility to members is sufficient. I am afraid my experience in the industry tells me that that is not correct. It needs to be in the Bill if that is the Government’s intention.
Also, where employers are involved in the process of releasing surplus, it is absolutely right that it should involve the independent recognised trade unions that represent the affected employees. This is established practice elsewhere in pensions legislation, where unions must be notified and, in some cases, consulted before decisions are taken. This should clearly apply. If it applies to benefit and changes, it should apply in the case of surplus release.
I turn to my other area of concern: pension increases. It is important to understand the context. Prior to 1997, there was no general statutory requirement for increases in payment, other than those associated with contracting out. However, by the mid-1990s, particularly after the Scott and the Goode reports, it had become standard practice for pensions in payment to be increased annually by at least a minimum amount. In some schemes, this was set out in the rules; in others, it depended on trustee discretion. Which approach was adopted was largely a matter of chance. Either way these increases were funded, members paid for them during their working lifetime as part of their pension contributions, and they had a reasonable expectation that they would receive increases when they retired.
Although scheme finances have fluctuated since then, in general schemes now have sufficient resources to pay increases. It is therefore reasonable to expect them to provide those increases, whether guaranteed or discretionary. This reflects the reasonable expectation members acquired when they accrued benefits in the 1980s and 1990s. This applies in two overlapping contexts. The first is to benefits provided by the Pension Protection Fund and the Financial Assistance Scheme, where the original legislation in both cases excluded any allowance for pre-1997 increases, regardless of rules or practice. The second aspect is members of active schemes: the scheme is continuing, but they no longer receive the discretionary benefits to which they have a reasonable expectation given their service in the 1980s and 1990s.
I welcome the provisions in the Bill relating to the PPF/FAS. They are clearly a response to the current financial state of the PPF. Without the surpluses in the PPF, I doubt that these measures would have come forward, so they are welcome. However, as I have explained, making a distinction between those for whom the rules say they are going to get increases and those for whom the practice was making discretionary increases is invidious. All affected members should receive the same increases. The benefits from these schemes have never been or been intended to be an exact copy of the benefits that were provided by the schemes that were lost. They were always a broad-brush approach to what is fair to provide.
Given the current financial circumstances, it is absolutely fair that all members should benefit from those surpluses. The Bill provides for employers to share in those surpluses by the suspension of the PPF levy. Employers are sharing in the surplus; members should also, whatever the precise details of their entitlement to past increases. Crucially, none of these members is getting any younger and many, sadly but inevitably, will benefit from the Government’s proposals for only a limited period. For 28 years they have suffered a loss and they are now going to benefit from the change in policy but, for many of them, it will be for far too short a period.
Finally, I turn to the circumstances of defined benefit schemes that are continuing to run. Many are in a healthy financial state but are failing to provide discretionary increases for members’ benefits that were accrued before the statutory requirement was introduced in 1997. I believe that it is now reasonable to expect schemes in general to provide these members with discretionary increases, and we need to investigate ways in which we can make sure that that will happen in Committee. I look forward to hearing my noble friend’s response to these and other points that have been made in the debate.
Occupational Pension Schemes (Collective Money Purchase Schemes) (Extension to Unconnected Multiple Employer Schemes and Miscellaneous Provisions) Regulations 2025
Lord Davies of Brixton Excerpts(1 month, 3 weeks ago)
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Lord Davies of Brixton (Lab)
We have here the interaction of a number of different pieces of legislation. Of course, we are all looking forward to the Second Reading of the Pension Schemes Bill next week. We have before us the Occupational Pension Schemes (Collective Money Purchase Schemes) (Extension to Unconnected Multiple Employer Schemes and Miscellaneous Provisions) Regulations 2025. We also have the 2022 regulations that first set out the regulatory requirements for CDC schemes. In parallel, we have the Occupational Pension Schemes (Collective Money Purchase Schemes) Regulations. As the Minister and the Front Bench well know, that sets out another of the Government’s initiatives: to provide CDC schemes that can offer retirement pensions, rather than people having to buy annuities. All these different pieces of legislation interact in ways, I think it is fair to say, that are sometimes difficult to grasp.
What worries me about these regulations is that it is a bit like when you have extensive building work in your house, and the architect asks you where you want the light switches. Of course, you do not know where you want the light switches until you have lived in that house for two or three years, but you have to decide in advance. This is my concern about these regulations: we do not know how these schemes will work in practice. We are all agreed that they are a good thing, we want to see them supported and developed and we have to start somewhere, but certain aspects of what is before us today cause me some concern—or, to tone it down, some level of interest.
First, is it clear that the provisions in the Pension Schemes Bill dealing with value for money, guided retirement and particularly scale will apply to these schemes? They are closer to these schemes than they are to defined benefit. It is quite clear in the legislation that the scale requirement applies to DC arrangements. To what extent will the scale requirement directly, or indirectly through the supervision requirements, end up requiring schemes of a particular scale? My fear is that, if there is a scale requirement, it will just be another barrier to establishing these schemes that, in practice, we all want.
An associated point that has been raised is that we are now effectively getting separate CDC regimes. The existing one with the Post Office scheme is the only live example, and that is very scheme specific. We do not know how far the legislation can cover other sorts of single-employer CDC schemes. Then we have the multi-employer scheme regime and the retirement pension CDC regime. Are these regimes completely separate? To what extent is there going to be scope to make transfers from one regime to another? Are these regimes overlapping or are they distinct?
One problem is always raised. I am a strong supporter of CDC arrangements. It should be the future of private sector pension provision and we want to encourage it as much as possible, but there are problems with the way it works in practice. Ultimately, however deep it is hidden down in the workings and however many formulae you adopt to ensure fair treatment, there is always the risk of some form of cross-subsidy between members. There will be winners and losers.
With multiple employer CDCs, there is also the possibility of cross-subsidy between employers. It is inherent in the approach, in my view. I know supporters of CDC argue that it is not the case, but I think you should always be concerned about the fear of that. We do not know, because so many of the supervisory powers are given to the regulator, the detail of how they are going to be applied. Will it be made clear that this will not be an impediment to developing these sorts of arrangements? The important point is communication. We need to be clear in the regulations about the need for full and adequate communication so that potential members are fully aware of the nature of the arrangement they are entering.
My final concern is that we are heading towards a retailisation of this sort of provision. It will become a retail product, and that is not how I and many other people envisaged CDC operating. It should be a collective endeavour. I must admit that I have an instinctive reaction against the use of the word “proprietor” for the sponsor of these arrangements. I would prefer the word “sponsor”, because “proprietor” implies that it is not a collective arrangement but a commercial one.
Clearly, it will cost money to set up these arrangements and, to a certain extent, the complexity introduced by these regulations means that even more money will be required to do so. But my fear is that we will ultimately end up with underregulated insurance companies, rather than the collective and co-operative arrangement that I think is the true way forward for CDC arrangements. My fears are that it is all too complicated. We need to be clear about the overlap between these different areas of legislation and the different types of CDC arrangement. A system in which people have the right to transfer their money out of a scheme at the same time as the Government are encouraging schemes to invest in non-market based investments, means that there is a contradiction, which could be the Achilles heel of this type of arrangement.
I am taking this opportunity to express my concerns and raise them formally with the Minister. The specific questions are about multiple CDC arrangements, information communication requirements and an approach which enables people to understand what they are getting here—it is better than pure DC.
My final complaint is that the regulations persist with the business of calling these schemes “collective money purchase”. I have made the point before in these discussions that they are not collective money purchases. They are called money purchase schemes because you purchase an annuity, and these schemes are being set up specifically with the introduction of retirement-only CDCs so that you do not have to buy an annuity. I am really sorry that the department has persisted in using the term “money purchase” in these regulations when they are clearly not money purchase arrangements.
Viscount Younger of Leckie (Con)
My Lords, I am pleased to speak in this debate on the regulations extending collective defined contribution schemes to unconnected multiple employer arrangements. I say at the outset that I accept the apology given by the Minister for the changes needed in Schedule 2. I hope that when she responds she will confirm that these are minor changes, as I assume they are; that would be helpful.
By any measure, this is a highly technical statutory instrument that even seasoned pensions professionals would concede is difficult to absorb on first reading. Yet precisely because of that complexity, and the potentially far-reaching implications for the architecture of our pensions system, it is essential that this Committee scrutinises it with particular care. Collective defined contribution schemes—CDCs—are an important and promising innovation. They offer the potential for better outcomes than pure defined contribution schemes for risk-sharing across generations and smoothing investment volatility in retirement. They could and should play a larger role in the future of pension provision in the United Kingdom.
We also recognise that this SI is an enabling vehicle. It is a mechanism to broaden the CDC framework so that unconnected employers may participate. We raise no objection to that direction of travel. I am surprised that this debate will not have more contributions from other Peers. I am very pleased that we have the welcome and regular presence of the noble Lord, Lord Davies. I am quite surprised that we have no representation from the Liberal Democrats. I am not sure why that is.
Universal Credit Bill
Lord Davies of Brixton ExcerptsTuesday 22nd July 2025
(6 months, 1 week ago)
Lords ChamberRead Full debate Universal Credit Act 2025 View all Universal Credit Act 2025 Debates Read Hansard Text Watch Debate Read Debate Ministerial Extracts Amendment Paper: Committee of the whole House Amendments as at as at 9 July 2025 - (9 Jul 2025)
Baroness Smith of Llanfaes (PC)
My Lords, I will speak in the gap, if I may. I would like to congratulate the noble Baroness, Lady Shawcross-Wolfson, on her maiden speech. I look forward to her future contributions, particularly with her policy background. I also want to thank the noble Baroness, Lady Bryan, for her service to this House.
I support the regret amendment in the name of the noble Baroness, Lady Bennett, and I have key three key points to add to this evening’s Second Reading of the Universal Credit Bill. First, on Wales, the Joseph Rowntree Foundation calculates that there are almost 900,000 disabled people in Wales—around 30% of the population—with 26% of working-age adults self-reporting as being disabled. The DWP’s own Green Paper evidence pack shows that Wales will be disproportionately affected by any changes to welfare. It shows that 14.7% of the working-age population are on disability and incapacity benefits, the highest in the UK, while 20.4% of working-age people and 26.9% of working-age households in Wales receive universal credit. The Bill has also been highlighted by the First Minister of Wales as having a disproportionate effect on Wales. Will the Minister share with us what specific attention the UK Government have given to these disproportionate effects, and what discussions His Majesty’s Government will be having with the Welsh Government on the effect of this Bill?
My second point is that we already have a two-tier benefit system, and this Bill, as so eloquently pressed by other speakers, will worsen that. What I mean by that is that the two tiers already in existence are in relation to age. I will illustrate this briefly. Universal credit rates are 20% less if you are under 25, and the housing cost elements can be 45% less for those under 35 in some areas. There is a presumption here that all young people have parents or family members to support them, which is not the case. Practically speaking, the cost of food and bills is not, shockingly, cheaper for those who are, say, 24 years old compared to someone over 25. I ask the Minister: are those age rates something that will be addressed in the future? The noble Baroness, Lady Browning, also raised real concerns in relation to the gap in the welfare system for those with lifelong disabilities who are under the age of 22.
Finally, as a former unpaid carer, I would just like to add my voice to the calls for further clarity for unpaid carers under this new system.
Lord Davies of Brixton (Lab)
If I may, I will speak briefly in the gap, principally just to—
Baroness Anderson of Stoke-on-Trent (Lab)
My noble friend has not given notice.
Lord Davies of Brixton (Lab)
Okay. I just wanted to say thank you to my noble friend Lady Bryan.
Public Authorities (Fraud, Error and Recovery) Bill
Lord Davies of Brixton ExcerptsWednesday 18th June 2025
(7 months, 2 weeks ago)
Grand CommitteeRead Full debate Public Authorities (Fraud, Error and Recovery) Act 2025 View all Public Authorities (Fraud, Error and Recovery) Act 2025 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 96-V Fifth marshalled list for Grand Committee - (17 Jun 2025)
Member’s explanatory statement
This amendment requires the Secretary of State to undertake an affordability assessment before making a direct deduction order.
Lord Davies of Brixton (Lab)
My Amendments 109A and 109B address the twin issues of affordability and minimising social harm. Amendment 109A deals with the Government’s proposed “affordability assessment”, which is my term, not the Government’s. Amendment 109B requires a de minimis amount to be left in an individual’s bank account following the application of a deduction order. Neither amendment breaks new ground and both are within the terms of government policy. If we are going to pursue this policy, it has to be transparently fair and minimise social harm, which is the purpose of my amendments.
It needs to be stressed that both amendments are strongly supported by UK Finance, which is the collective voice for the banking and finance industry. These are the people who will have to undertake the hard work of implementing this policy, so their views should be taken seriously. I am not a natural proponent of UK Finance—I have spent much of my working life criticising insurance companies and banks for how they treat people—but it is a relevant participant in this process and its views should be taken most seriously.
On Amendment 109A, as I mentioned, there will be an affordability assessment. It is pretty well hidden—there is no reference to it in the Bill—but paragraph 52 of the Explanatory Notes states that direct recoveries
“will only happen once affordability and vulnerability checks have been carried out”,
so there will be checks. There is a more explicit reference in paragraph 723, which states specifically that
“prior to pursuing a direct deduction order”,
the Secretary of State will consider
“the affordability of recovery”.
That affordability assessment is an inherent part of the legislation, even though it is only implied in the Bill rather than required explicitly. My amendment is a probing amendment to press the Government on whether it would be better to have this in the Bill.
To paraphrase the Government’s position as I understand it, recovering benefit overpayments through the debt recovery measure will be a last resort and the Minister may make a direct deduction order only if satisfied that it will not cause a liable person to suffer hardship. Maybe the Minister could put the intention of the legislation into the Government’s words. UK Finance has said that it welcomes this intent but is concerned that the existing safeguards may not provide the level of protection that vulnerable consumers need in practice. Perhaps it knows its customers better than we do.
For this measure to be effective, an affordability assessment is essential: one that is carried out by the DWP and is accurate and realistic. I understand that the DWP is working with the Money and Pensions Service to flesh out the detail of the process. It is obviously essential that the DWP can understand the circumstances of vulnerable customers to ensure that the affordability assessment is fair and will not lead to social harm.
We know that organisations such as the Money and Mental Health Policy Institute—I declare an interest as a member of its advisory panel—the Money Advice Trust and Citizens Advice have been campaigning for some years for improvements in government debt practices. This is not a new problem. I mentioned in the previous sitting the comments made by the House of Commons Public Accounts Committee, but it is relevant to repeat them. It said that the DWP
“does not understand well enough the experience of vulnerable customers and customers with additional or complex needs … We remain concerned about the potential negative impact on protected groups and vulnerable customers of DWP’s use of machine learning to identify potential fraud”.
This goes back to an earlier debate but it highlights that the evidence to hand is that the DWP is not very good at assessing affordability. It is reasonable, by means of proposing this amendment, for the Government to explain how the affordability will be assessed. If the proposals do not appear to be adequate, I will want to return to this issue on Report.
Similarly, Amendment 109B is a probing amendment. It lacks much of the detail that a specific proposal would need but proposes that there should be a de minimis amount left in an individual’s account following the application of a deduction order. The intention is that individuals should not be left without access to essential funds and should not suffer undue hardship.
This is not a new proposal because there are other circumstances in which debts owed to the Government, where the Government have powers to extract money from people’s bank accounts, permit a de minimis amount. There are the comparable HMRC direct recovery of debt measures where there is a de minimis balance of £5,000. There is a similar arrangement in Scotland. Scottish law is a mystery to me, but there is a parallel arrangement under Scottish law that, in circumstances where debts can be taken, they have to leave at least £1,000.
The problem arises—talking about both sorts of deduction orders—that there is a possibility of extracting money and leaving the individual with no income whatever to meet routine payments such as rent. Because the bank account is frozen, they may also have made prior commitments and, when those arise and these private arrangements seek money from the bank account which has been driven down to zero by the deduction order, the individual is left in an extremely difficult situation as debts that they have incurred are not able to be met. There is also the issue of money for routine costs. If someone depends on their bank account to feed their family and the account is driven down to zero, that will also incur considerable and unwarranted hardship.
It is quite clear that, following existing practice, this legislation should permit a de minimis amount to allow routine financial transactions to continue where barring them would cause social harm. There is a particular problem that, once the 28-day period has been triggered during which people can object to the proposed deduction order, the account is effectively frozen. In fact, it is frozen until the end of the unlimited period the DWP has in order to reply to the appeal against the deduction order. There is potential for considerable social harm and that is why it is important that at least some agreed sum of money is left. I suggest £1,000 in my amendment but I am really raising the issue in principle.
If the Government can come back on Report with a proposal along the lines I suggest, that would be good. If they do not, I will seek to raise this issue. Both these amendments seek to avoid social harm, and I hope the Government will take the points on board and come back on Report with suitable amendments to avoid the problems identified, not just by me but by bodies in membership of UK Finance which deal with the customers who will be caught by these provisions.
Baroness Sherlock (Lab)
My Lords, I am grateful to my noble friend Lord Davies for raising this, and to the noble Viscount for his observations. I agree with my noble friend that affordability assessments should be conducted—he has made that clear, and we certainly want to do that as we think it is important—before a direct deduction order is issued, but we regard this amendment as unnecessary and duplicating existing provisions.
Paragraph 6 of new Schedule 3ZA, inserted by Schedule 5 of the Bill, provides that recovery must not cause hardship to the debtor, any joint account holder or dependant, and must be fair. Paragraph 3 requires the DWP to obtain, via an account information notice, bank statements covering at least the most recent three months in order to help make that assessment.
Further detail on how affordability will be assessed will be set out in the code of practice, a draft of which is available to Members; I am sure that my noble friend has had the opportunity to see it. It sets out the principles that will apply when affordability is assessed. They include ensuring that essential living expenses and other reasonable financial commitments are identified and protected. Officials are working closely with organisations such as the Money and Pensions Service to develop the code and, as required by Clause 93, a formal public consultation will be conducted on the draft before it is first issued.
As I have already outlined, affordability assessments must and will take place prior to enforcing a deduction order. These checks use banks statements, allowing DWP officials to consider expenses such as housing and utilities, enabling the deduction to be affordable, fair and based on individual circumstances, rather than a blanket approach of leaving a set amount in the account which could, if not set high enough, prevent the debtor from meeting those essential costs, as the amounts will vary from person to person.
For regular direct deduction orders, paragraph 6(3) of new Schedule 3ZA requires that any regular deductions made by the DWP each month must not exceed 40% of the monthly average amount credited to the account during the last period in which statements were assessed. Regulations will be made under paragraph 24(2)(d) to further set a maximum rate of 20% for all cases that have not arisen due to fraud.
These figures are maximums, rather than fixed deduction rates. Deduction rates will vary as officials take any affordability, hardship factors or other relevant circumstances into consideration. This approach mirrors that already used effectively in the DWP’s existing powers of deduction from earnings or benefits, and it is not obvious why it should be different in these circumstances. Given the safeguards outlined, requiring that £1,000 be left in one or more of the liable person’s bank accounts in every case where a DDO was sought is unnecessary, as the safeguards will already achieve the outcome intended by this amendment.
Regarding the specific questions, I reassure my noble friend that we are alive to the concerns of UK Finance, which we meet regularly. We are working with MaPS and relevant debt sector organisations on this. He mentioned a comparison with HMRC. HMRC has confirmed that its power is a one-off deduction of a tax debt, not a regular deduction. As a result, it does not assess customers’ affordability as part of the process. Its safeguard instead requires it to leave a minimum of £5,000 across the customer’s accounts to stop taxpayers being left with insufficient funds to cover basic needs. We are taking a different approach: we are assessing affordability, and we will have clear sight via bank statements of the debtor’s ability to repay.
In addition to the work we are doing with MaPS, we are working with relevant stakeholder organisations to make sure that our communications with debtors are clear, to help them understand what we are doing and to engage in the best possible way.
I remind the Committee that before any deductions are taken, account holders will be notified and given the chance to make representations. They can provide relevant information about their financial position and evidence relevant to affordability. Even at that stage, the department’s preference is to reach an agreed position with the debtor. If reasonable payment terms can be agreed and they are maintained by the debtor, the DWP will not make a deduction order.
My noble friend and I clearly want the same thing: to make sure that any recovery is affordable. We have taken different routes, but I hope that what I have said today will help him to accept that our route is doing the job and, in the light of that, he will withdraw his amendment.
I am sorry, I forgot to respond to the noble Viscount about destitution. I may have to come back to him on that, because it would depend very much on somebody’s circumstances. Although the household support fund is locally determined, some directions, steers and guidance are given by the centre by the DWP to local authorities. But the fund is significantly there to help with the cost of living. In relation to someone who is destitute and has committed fraud, people may still, if they have an ongoing entitlement to benefit, have been subject to a loss of benefit penalty as part of a process. So it would very much depend on the circumstances. But if I can find anything else useful, I should be happy to put that in writing to the noble Viscount.
Lord Davies of Brixton (Lab)
I thank the noble Viscount and my noble friend the Minister for comments on my amendments. It has been useful to receive a coherent assessment and description of how this process will work. I will read carefully what was said and consider whether it is an issue that needs to be pursued at a later stage. I thank those who have spoken. I beg leave to withdraw my amendment.
Lord Davies of Brixton (Lab)
We have an issue on this proposal to remove driving licences from people who fail to pay their debts to the DWP. We effectively had a debate on the issue at Second Reading, and I am sure that there will be a debate on this at Report. The purpose of having another prolonged debate at this stage, when situations and positions are so clear, is limited. Although there are clear arguments about effectiveness, and it was advanced that the experience of the child maintenance system, where such a power exists already, indicates the success of the policy, the problem is that we do not have a clear counter to that. We know what we know: very few driving licences are deducted or abolished because of action by the Child Maintenance Service. Is that because it is an effective policy and everyone complies, or because it is rarely used because it is ineffective? We simply do not know. The proponents of the proposal here will say that that demonstrates the policy’s effectiveness, but I think it is reasonable to continue to express doubts about that. However, that is a separate issue.
My objection, fundamentally, is about the philosophy of what is being achieved here and about the nature of state power. I am sure we all agree that the state should have the power to decide who is safe to drive on the public roads. I have no problem with that; that is the responsibility that we as a community have entrusted to the state. The issue is whether that right should be used for other purposes. Is the fact that you can or cannot have a driving licence related to other factors? In my view, it should not be used for other factors; that is an overextension of state power, which is the fundamental reason why I oppose this part of the Bill and why I am suggesting that the clause, and consequently the schedule, should not be passed. This is an issue of principle, as I have explained, and I am sure that we will return to it on Report—so enough said.
Baroness Sherlock (Lab)
We are not proposing removal of passports on this occasion.
Lord Davies of Brixton (Lab)
I thank noble Lords who took part in the debate. I thank the noble Baroness, Lady Bennett, for her support. I am disappointed that the Conservatives, the party of individual freedom, did not see fit to support my argument.
There are a couple of issues that could be helpful to the debate which is likely to take place on Report. If it is possible to get further statistics from the Child Maintenance Service about people who were threatened and then gave in—I cannot totally see how that is possible—that would be good.
There is also the issue of the discriminatory nature of the punishment between different groups of people. As I have made clear, that is a practical objection, which is not why I am against this measure at heart. It would be useful in debate to know more of that practical question. As I have read the paper so far, it is about people who require a driving licence to carry out the functions of their job. However, my noble friend the Minister said that it would cover people who need to drive to work. Perhaps she could interrupt me if she is able to clarify.
Baroness Sherlock (Lab)
It is up to the court to determine if someone has an essential need for a licence. We have deliberately drawn it broadly so that the court can make that determination. Examples were given of somebody who needed a car to go to work or maybe had essential caring responsibilities. In response to the noble Baroness, Lady Bennett, I raised the possibility of somebody who lived somewhere so remote that there was no public transport. Again, that would be a case that they would make to the court. The position is deliberately drawn broadly to allow the court to make that determination.
Lord Davies of Brixton (Lab)
Thank you; that is helpful. I withdraw my objection to Clause 92 standing part of the Bill.
Public Authorities (Fraud, Error and Recovery) Bill
Lord Davies of Brixton ExcerptsMonday 16th June 2025
(7 months, 2 weeks ago)
Grand CommitteeRead Full debate Public Authorities (Fraud, Error and Recovery) Act 2025 View all Public Authorities (Fraud, Error and Recovery) Act 2025 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 96-IV(a) Amendments for Grand Committee (Supplementary to the Fourth Marshalled List) - (13 Jun 2025)
Lord Vaux of Harrowden (CB)
My Lords, I speak to my Amendment 79B and thank the noble Baroness, Lady Kramer, for her support for it. It is a very simple amendment that would make the giving of an eligibility verification notice subject to the same safeguard that already applies to all the other information-gathering powers within the Bill—namely, that the Secretary of State must be satisfied that issuing an EVN is necessary and proportionate for the purpose for which it is issued.
The Minister will no doubt have noticed that I have taken the liberty of inserting “reasonably” into the amendment, as we have just been discussing. Otherwise, the wording is aligned with the safeguard in Clause 3(1)(a), in relation to the Cabinet Office Minister requiring information, and to the wording in Clause 72, in relation to the Secretary of State for the DWP requiring information about suspected fraud under new Section 109BZB(1)(b). This safeguard applies everywhere in the Bill whenever the required information relates to suspected fraud. Rather strangely, however, it does not appear in Schedule 3, where there is no suspicion. That seems the wrong way round. Surely it is even more important that the giving of an information notice should be necessary and proportionate in cases where there is no suspicion.
I am assuming that this omission is in fact an oversight and that, given that it appears everywhere else in the Bill, the Minister will simply accept it. If not, she will need to explain why the exercise of these important and intrusive suspicionless information-gathering powers should not have to be, at the very least, necessary and proportionate in the same way as the exercise of the other information-gathering powers have to be. I will take a little bit of convincing, I am afraid.
Lord Davies of Brixton (Lab)
My Lords, I will speak to my Amendment 80. There is a certain amount of overlap with other amendments not just in this group, obviously, but in other groups. The mysteries of the grouping of amendments are beyond my pay grade, but we are in a situation where we are bound to discuss the same subject again and again—and, I suspect, again. I will read with interest what my noble friend the Minister said in replying to the previous debate. At the conclusion of all these overlapping debates it would be useful to the Committee if she could write a letter explaining how this whole thing fits together.
Baroness Sherlock (Lab)
I am grateful. The noble Viscount is quite right: there is some fraud in the state pension. It was a judgment about proportion, having compared the size and value of the case load. It is very small. The fact that the affirmative procedure is used means that there will have to be a debate. The Government cannot simply on their own start investigating new benefits without anyone knowing about it, so that makes a difference.
The Bill is clear that, to help make this measure proportionate, only the minimum amount of information necessary is shared with DWP by the banks. That can include only details about the account, such as an account number and sort code; details to identify the individuals, such as names and dates of birth; and details about how the individuals appear to be breaching the eligibility criteria for their benefit. But still at that point, no one is suspected of having done anything wrong; the presumption of innocence remains, because further inquiries are needed to establish whether a benefit has been incorrectly paid.
Some people may have disregards in place that mean they are allowed to have more money than is normally used in the benefit rules. For example, normally you are allowed to have only £16,000 maximum in capital to be entitled to universal credit, but there are reasons why you might have more than that. Some forms of compensation payments are disregarded, for example. There may be a perfectly good reason, which will be investigated at that point—and that will be that. Others may have made a genuine mistake that has led to an overpayment of benefits, which it is important to correct as quickly as possible for the individual and the organisation.
However, there will be some cases, especially in the early stages, that ultimately lead to fraud being identified; that conclusion will never be drawn from these data alone. As is the case now, any claim where a suspicion of fraud arises is referred to our specialist investigation team, which has to undertake a thorough investigation, following all reasonable lines of inquiry before any determination can be drawn.
Just to reassure my noble friend, whether he accepts it or not, in fraud and error cases, decisions on entitlement will be made by a DWP staff member.
Lord Davies of Brixton (Lab)
It is clear that we are talking about two different stages here. The first intervention into the bank accounts of individuals will be done algorithmically. The DWP will provide the banks or whoever with the set of criteria that they should apply, and the banks will run it through their computers and that will throw up cases. No individual will be involved at that stage. Cases that are highlighted then referred to the DWP are the ones where human intervention will start. But there are the two stages, and the human intervention is at the second stage, not the first.
Baroness Sherlock (Lab)
I think that we are going to repeat ourselves at each other. This is essentially a data-requiring measure—it is a data push. The data is coming across to DWP, and that data will be used with other data, and where there is an indication that there may be an overpayment, it will be dealt with either by reaching out to the individual or, if there is a possibility that it is fraud, it will be referred for a fraud investigation. Any decision on benefit entitlement and fraud and error is made by a DWP staff member.
Lord Davies of Brixton (Lab)
I hope that the Minister will forgive me for making the point, but it is crucial. The bank will send a data file with cases that it has flagged. Will cases from that data file be identified by humans or by the DWP algorithmically?
Baroness Sherlock (Lab)
I think that we are talking at cross-purposes here. The information will be sent across to DWP, and DWP will take information on an individual and, if there is a signal that an individual may have a breach in eligibility criteria and may have more money in their bank account than is permitted, that information will be looked at and taken together with other information and a DWP staff member will make a judgment about what to do about that. I do not think that I can be any clearer than that.
Lord Davies of Brixton (Lab)
My Amendment 83 is a probing amendment. I want to know more about the Government’s thinking on this. As the noble Lord, Lord Vaux, indicated, this is sparked by the comments of UK Finance, which represents, broadly speaking, those who will have to comply with this legislation, interrogate customers’ bank accounts and provide the DWP with information, so its views are very germane. It submitted a briefing for Second Reading, and a number of its points still stand, except to the extent that there has been any engagement between the DWP and UK Finance since Second Reading. I would be interested if the Minister could brief the Committee.
It is still, however, relevant to mention my points. I will focus on one in particular, as my amendment does. UK Finance raised a range of concerns that need to be taken seriously. I will outline them, just to put this into context. It is concerned about the potential conflict with its duties to deal with financial crime. It regarded this as a diversion from its capacity to deal with economic crime, and it was concerned that there were insufficient safeguards for bulk data access. I would be interested if the Minister could address those issues, either now or in correspondence.
My amendment focuses on the other point that it raised. It said:
“Risks of financial harm: Tensions between the Bill and firms’ existing obligations under the FCA’s Consumer Duty and Vulnerability Guidance could result in harm to vulnerable consumers. Bad actors learn workarounds quickly, so the powers may end up impacting most acutely people inadvertently making—or subject to—errors”.
That is a massive criticism of the Bill’s provisions, and it is important that it should be addressed explicitly, either in correspondence or in reply to this debate. I want to paraphrase in very broad terms the attitude of UK Finance towards the Bill. The truth—although it would not say it in quite these terms—is that it does not like it. It wishes that it was not here because of the pressure that it would place on it in all sorts of ways. That is outlined in its briefing.
I will address more directly the issue of financial harm to vulnerable customers. The Government need to say extensively and explicitly how they expect financial institutions to reconcile their undoubted duty of care towards their customers and their obligations under the Bill. To put this into context, the Child Poverty Action Group says that
“the eligibility verification measure would mean people face more suspicionless surveillance and intrusion into their privacy simply by virtue of being benefit recipients. We believe it is fundamentally unfair and potentially unlawful to subject these families to surveillance that the rest of the population does not face, simply because they are on a low income”.
I already quoted the concerns of Helena Wood of CIFAS. There is no doubt that the provisions of the Bill will be of massive concern to individuals, and that should be a major issue in how the Government implement the Bill—I have made plain my objections in principle—and how it will be handled in relation to vulnerable customers.
I have an amendment—let us hope we get to it on Wednesday—about the affordability assessment. Having an affordability assessment is not my idea; it is in the Government’s briefing note, but they do not explain what they mean by it. We will have a debate on Monday about the nature of that affordability assessment. But that in itself will put pressure on customers. Just being there, it will create pressure, particularly for people struggling with poverty and who have problems with their mental health.
It is essential that the affordability assessment will be able to understand the individual circumstances, but the process of implementing that assessment will in itself create harm for the consumer. I cannot see an easy way through on this, but the Government need to address the issue and tell us what they will do to ensure that this conflict is avoided.
Baroness Fox of Buckley (Non-Afl)
My Lords, there was extensive conversation about the role of banks in the debate on a previous day in Committee, and I probably got carried away with my own hyperbole when I said that they were being coerced into being involved, on which the noble Baroness, Lady Anderson, corrected me. However, I think we can say that they are compelled to be involved and that financial penalties, which will become increasingly punitive, will be levied if they do not do as the Government request. If they get those penalties, the cost might not be an issue but there would certainly be reputational damage. We need to have some context here and recognise that the banks are not queuing up to do this. That is an important point, which the noble Lord, Lord Davies of Brixton, has made. There is a reluctance about some of the things that are happening with the Bill, which I think the Government can admit to.
In all the literature they have produced and in conversations we have had so far, the Government have reassured those of us who are worried about privacy. We are constantly being reassured that there are limitations on the type of data the banks will share. On the other hand, the way in which the Government are dealing with that is by saying that the banks will be fined—there will be a penalty—if they overshare or if they provide inaccurate information, so I fear that this penalty will, again, have the impact of pushing the blame or responsibility on to banks for any errors.
That makes me nervous, because it is not clear to me how they will not see anyone on benefits as just a pain in the neck for them, since they will now have to go through the exercise of checking, which they are being compelled to do or they will be fined or get into trouble, and if they get the information wrong or hand over the wrong information, they can be fined again. Inevitably—this is why I am interested in these amendments—the banks will associate these eligibility verification notices and the work being asked of them for those on benefits, and they will view such people as creating more work and more jeopardy.
I also think the banks are being held responsible for things they should not necessarily be responsible for. I would be interested to know how the Minister feels, because I think it is a reasonable query at this point to ask, “Isn’t there a problem with private banks being asked to be government inspectors?” I think it was one of the MPs who said that the purpose of banks is not to act as an arm of the state. How should private banks respond to the fact that the state is asking them to do a huge amount more in relation to this clamp-down on DWP welfare fraud? It seems to me that, ultimately, we are asking the banks to do what the Government should be doing, and the banks will get the blame if things go wrong. They are the ones who will be doing the surveillance, no matter which way we look at it.