Pension Schemes Bill

Lord Palmer of Childs Hill Excerpts

2nd reading
Thursday 18th December 2025 Lords Chamber

[Lord Palmer of Childs Hill (LD)]

Yes, my Lords, we are getting towards the end. I thank all noble Lords who have who have spoken. My particular thanks and congratulations go to the noble Baroness, Lady White of Tufnell Park, who made a marvellous first speech, which I am sure will be one of many.

There is much to welcome in the Bill; let us start positively. My noble friend Lady Kramer—as noble Lords know, she cannot participate today because she is at a funeral—is seeking the detail and the risk profile of the assets that will qualify under the Mansion House compact. Most people contributing through auto-enrolment into default funds have few resources and should not be in high-risk investments, certainly not without their permission.

My noble friend Lady Bowles, with great expertise, emphasised that fiduciary duty must remain the overriding principle of pension governance. She warned that mandating specific investment vehicles risks undermining trustees’ discretion, encouraging herding and discriminating against proven structures such as listed investment funds. Drawing on lessons from the LDI crisis, she argued that statutory preference cannot guarantee financial benefit and may expose pension members to unnecessary risk.

My noble friend further highlighted the Bill’s unjustified exclusion of listed investment companies and trusts, despite their track record in financing UK infrastructure and growth businesses. She also cautioned that lobbying pressures appear to have shaped the preference for long-term asset funds and urged that legislation should not be dictated by sectoral interests. Her message was clear: fiduciary duty must not be subordinated to lobbying or legislative preference, because it is pension members who will ultimately bear the cost.

My noble friend Lord Sharkey raised many important matters, many of which I will mention, including mandation, DB surpluses and DC master trusts. My noble friend Lord Thurso, who cannot be present—he is up in Inverness—was particularly keen to ensure proper guardrails and governance in relation to DB surplus release, mandation and adherence to the stewardship code, as well as seeking to improve the lot of pre-1997 pensioners who have not benefited from inflation uplifts. He will pursue these matters. Noble Lords can therefore see a lot of amendments lining up.

We will need to consider any action in the Bill to remedy pre-1997 pension erosion. The absence of discretionary increases for pre-1997 pensioners has clearly resulted in an erosion in the real value of their pensions. That is not the only injustice that has impacted on many pensioners. I draw attention to the AEA Technology Pensions Campaign’s work fighting for pensioners who were misinformed by the Government and ended up losing out as a result, as recognised by the Committee of Public Accounts in its June 2023 report on this issue. Although that is not the only example of injustice in our pensions system, it illustrates the challenges many pensioners have faced uniquely. Therefore, we will look to scrutinise these elements of the Bill in detail.

Legislation to formalise the framework around defined benefit superfunds is long overdue and is in the Bill. A main question is how the gateway test for DB funds—in other words, which DB schemes are allowed to enter them—compares with other options such as a buy-out. I hope the Minister can elaborate when she replies on when a new option is created, so that what might be considered the appropriate schemes use it and the wrong schemes do not.

The Bill provides for master trusts to have a default retirement solution so, having built up a pension pot, schemes need to assist in managing it. Can the Minister provide details on how the new advice or guidance will work in practice? The noble Baroness, Lady Stedman-Scott, made that point. Broadly speaking, extraction of surplus funds from DB schemes as if in surplus is mostly paid in by the employer. At present, it is difficult to access the surplus. Can the Minister elaborate on, and perhaps estimate, whether these new powers will be taken up? Will they just be there to be looked at?

Creating defined contribution megafunds sounds okay, but can the Minister elaborate on schemes being too big to fall, and whether new entrants will struggle to enter the market? We need to have the value-for-money framework elaborated on. In Australia, where there are league tables, there is evidence of investment herding, as mentioned in another context, where everyone invests in the same way. That is hardly a dynamic, competitive market, which is what seems to be one of the purposes of the Bill.

We will, I am sure, discuss mandation at length. Mandation is a reserve power to force pension schemes to invest at the whims of the Government, but I state clearly that I oppose this, as it crosses a dangerous line. It is fine saying that the Government do not plan to use the power, but we have to provide for the actions of future Governments: for instance, a Government who do not believe in climate change, a point made by the noble Baronesses, Lady Stedman-Scott and Lady Hayman.

The Bill’s idea of auto-consolidating small pots of less than £1,000 sounds good, but it is a big effort resulting in very little change and not much happening until 2030. Perhaps I have that wrong, but it was a point raised by the noble Lord, Lord Vaux, and I wanted to emphasise it.

The pensions system is evolving. We see what is happening; we are trying to let it evolve in the correct way. There are few easy solutions and, as noble Lords have mentioned, there will be a lot of scope for amendments to the Bill to make it absolutely right. I hope we can work collaboratively, throughout the House, on improving the Bill so that it can be built on and relied upon by pensioners, pension funds and everybody else.