Pension Schemes Bill

Baroness Altmann Excerpts

Consideration of Commons amendments and / or reasons
Monday 20th April 2026 Lords Chamber

Moved by

[Baroness Altmann]

At end insert “and do propose Amendment 13B in lieu—

13B: Clause 22, page 24, line 19, leave out “12” and insert “24””

[Baroness Altmann (Non-Afl)]

My Lords, I thank the Minister for her introduction and her helpful remarks relating to Motion D, which is mostly what I will speak to in my remarks.

The Government say that allowing small pots to be moved without member consent after just 12 months is essential because, otherwise, any longer period would be detrimental to scheme members. I do not think that would stand up to market scrutiny. This is about providers not wanting to have to administer small pots, the economics of which they find rather challenging. As to the idea that if people with small pots move somewhere else or are moved somewhere else, that will lead to lower fees being charged by the pension providers, I think the providers simply making higher profits is the far more likely outcome.

It will not particularly be detrimental to most members, but for those whose money is moved, without their consent and potentially without their knowledge, I have concerns that allowing just 12 months and then shipping the money off elsewhere to another scheme, which could be worse and could perform worse but just happens to be an approved scheme under the regulator’s supervision, would be a rather dangerous thing to approve after such a short space of time. Members may have paused their contributions temporarily, and I point out to the Minister that members who have decided to opt out of auto-enrolment, who will then be re-enrolled after three years, may decide not to opt out but the money that they previously put into the scheme will have gone somewhere else. This to me suggests that the policy needs to be reconsidered.

Yes, of course, we need to look at the economics of auto-enrolment but we have to also balance fairness to members who have paused temporarily, whether it is for unpaid carers’ leave—perhaps a relative who is terminally ill and it has gone on for slightly over the one year, but their money may have been moved before they get back to their employer—with the costs to providers of administering small pots. I do not believe 12 months is the right balance. It is too short.

I just ask noble Lords whether they feel we should allow a bank to move somebody’s money in their account to a different bank because they have not got a lot in there and the bank cannot make any profit on keeping that current account. I do not think we would feel the same—that after just 12 months, without member consent, their money could be shipped off to another bank.

I agree that we have to find some way of administering small pots. I hope that, when the noble Baroness points out that there is a minimum of 12 months being provided for in the Bill and that regulations will set the required time period, after further consultation there is a chance that we will perhaps have a longer period than the current 12 months. On that basis, I hope that the situation for small pots will turn out to be better after regulations than it currently would seem. I will not press my amendment tonight.

Very briefly on Motion K1 in the name of noble Viscount, Lord Thurso, I too am extremely concerned about the problem of the AEAT pension scheme members. I feel that there is an obligation in some way on government to look more carefully and to take careful consideration of the findings of the various inquiries that have happened more recently. I hope that, when the meeting takes place, those of us who are particularly interested in the AEAT situation will be able to have a proper discussion with the Ministers on that issue. I beg to move.

[Baroness Neville-Rolfe (Con)]

My Lords, Motion J1 reintroduces my proposal for a review of the long-term affordability, intergenerational unfairness, fiscal sustainability and accounting treatment of public service pension schemes. I am trying to help the Government to fill a lacuna in their important work on pensions, so I was taken aback by the Commons’ reason for rejecting it—namely,

“that it is not necessary to duplicate existing information regarding public sector pension schemes”.

The presentation of the liability represented by public sector pensions is widely seen as inadequate, and the PAC itself has expressed concerns—in particular that pension liabilities are not being presented in a way that allows Parliament properly to understand their real costs in the long term.

I will highlight four reasons why a review is needed. First, the cost is huge. As we have heard repeatedly, unfunded pension liabilities represent the second-largest government liability after gilts. Currently, we commit future taxpayers to about £60 billion of new expenditure every year, in the form of a stream of index-linked new expenditure. According to the OBR, the long-term liability is £1.4 trillion, but it may be more as a lot depends on the assumptions made.

Secondly, it is an unfunded pay-as-you-go scheme. The problem with that is that the current generation of older and former public sector workers are taking money from younger generations of workers already weighed down by trying to finance housing, young families and, in some cases, repaying student loans. This is unfair, and it is why I put intergenerational unfairness at the heart of the review.

Thirdly, the coalition did well to reform some public sector pensions following the Hutton review, as the Minister acknowledged, but the new arrangements have turned out to be more costly than expected. Sadly, growth, which helps to ease things, has been modest. Moreover, substantial increases in the pay and size of the public sector make things look better in the short term, as employer and employee contributions increase. However, this is a mirage, as it stores up even more trouble for the future, as greater payouts on higher salaries will be needed as those people in the system retire.

Fourthly, there are serious accounting issues, as we know from the PAC. The scale of liabilities is not clearly visible from the public accounts. Moreover, as I have learned from my unique experience as a civil servant and a Cabinet Office Minister, the costs of future pensions are not properly taken into account in decision-making across the public sector—for example, on restructuring or adding to the workforce. In conclusion, there is a real need to establish whether the system is fair and sustainable, and whether anything could be done to improve things.

I emphasise that I support the work of public sector workers and that I am not making any recommendations. That is for the experts, who would look at the whole area objectively, and it is for the Government to decide what, if anything, needs to be done.

--- Later in debate ---

[Baroness Sherlock (Lab)]

My Lords, I am grateful to all noble Lords for their questions and comments. I spoke at some length at the start, and I think I answered most of the questions pre-emptively—or tried to—so I will not dwell on them.

On a couple of specifics, and to reassure the noble Baroness, Lady Altmann, and the noble Lord, Lord Palmer, as I stressed, the Bill says a minimum of 12 months simply because we want to be able to respond to any changes. If there is evidence that we need to make it longer, we can; if there is evidence we need to extend it later, we can do so in secondary legislation. It is set up to do that, and I can give her that assurance.

I am not going to get into America. For me, as parallels go, whether we have one or two years’ opt-out and who is the ambassador to the United States are probably slightly separate categories of decisions. Noble Lords will forgive me if I do not go there.

In response to the noble Lord, Lord Vaux, the two policies operate independently but the intention is that dashboards will be available before the small pot consolidation. I reassure the noble Lord, with the small pots he has scattered around, that he will be written to and given the opportunity to opt out, so that they will not be consolidated without his knowledge or against his will. I hope he will look out for that in due course and can then make appropriate decisions.

The noble Baroness, Lady Neville-Rolfe, asked about the presentation of information. The Treasury is exploring options to present pension liabilities on a constant basis. It is important to be clear that any such presentation would be supplementary. It would not affect the underlying liability, as the noble Baroness knows well, or the way they are presented in financial statements, but it would help to add an extra level of clarity to those who are reading them. I think I have made all the arguments around affordability and the nature of them.

I have one final word for the noble Viscount, Lord Younger, who feels there is no way for decision-makers to make appropriate judgments about the affordability of pension schemes without a review such as this. I think he should have more confidence. The coalition Government, of which his party was the leading member, reformed almost all the public service pension schemes and created a new system, and that is what we now have. A lot of work was done then and is being done now. The measures of affordability that I have described are such that the schemes have that corrective factor straight in them. The fact that the information is out there and published will, I hope, be enough. I therefore urge noble Lords not to press their Motions.

[Baroness Altmann (Non-Afl)]

My Lords, I thank all noble Lords who have spoken. As I said, I will not press Motion D1 to a Division. I beg leave to withdraw the Motion.

Motion D1 (as an amendment to Motion D) withdrawn.

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[Lord Vaux of Harrowden (CB)]

My Lords, I offer Motion E1, in the name of the noble Baroness, Lady Bowles, my wholehearted support. I also say in passing that I wholeheartedly support Motion G1 in the name of the noble Baroness, Lady Noakes.

The Minister has once again explained that the mandation powers are intended to backstop the voluntary Mansion House agreement. She has tabled an amendment that simply limits the amount of assets the allocation of which may be mandated to no more than 10% by value and 5% in the UK, with the UK to be defined later. The Mansion House agreement is a voluntary agreement. If the Government have a mandation power, they are basically saying, “If you do not do this, we will force you”, which would mean that it is not, in reality, voluntary. The trustees would be forced to act against what they believe is in the best interests of scheme members. Why else would they not want to invest in these apparently fantastic assets?

Under the Bill—and the Minister’s amendment in lieu does not change this—the only exemption to that would be if the trustees could prove that the mandated asset allocation would cause,

“material financial detriment to members of the scheme”,

not just that it would not be in their best interests, but would cause material financial detriment. It cannot be right to force trustees to invest in a way that they would feel would cause any financial detriment, let alone material financial detriment, even if limited to just 10% by value.

The Minister’s amendment still does not put any restrictions around the type of assets or, indeed, specific assets that can be mandated. Here I very much disagree with what she said earlier. It does not limit it to the assets in the Mansion House agreement. Despite the proposed new subsection (5A), which requires the regulations to describe the examples that are listed in subsection (4), these remain just examples. Subsection (5) remains very clear that a qualifying asset does not have to be one of the examples. The Minister’s amendment does not change that in any way. I do not agree that the deletion of subsection (8) has any such effect. The Bill will now just be silent on the allocation of assets within the 10%. There is nothing here that stops mandation in a single asset type or class.

There is nothing here to prevent any future Government mandating any assets they please. While the Minister might point to the report that the Secretary of State must publish under subsection (12), which, among other things, sets out how the financial interests of members would be affected, it is important to note that that applies to only the first set of such regulations under this subsection. Any further future mandation, perhaps under a different Government, is subject to no such safeguard, just the negative process. Such assets could be mandated for any reason they wish to give. As an example, what if Nigel Farage were to find himself in a position of influence? He is a well-known enthusiast for and investor in cryptocurrencies. There is nothing in this Bill that would stop him mandating that the relevant funds should have 10% invested in cryptocurrency. Any Government could use this power to mandate whatever pet project they wanted. Let us be clear that the definition of assets in the Bill is sufficiently wide that it could be mandation into specific assets, specific projects, rather than a class, if that is what they wanted to do.

Even if it is to be used only as a backstop to the Mansion House agreement, is that such a good thing? Let us look at the example assets set out in the Bill. One is private debt. You do not have to be an avid reader of the financial pages to know that there are growing concerns about whether private debt may be the cause of the next big financial crisis. Many investors are trying to get out, which is why many large funds are now restricting redemptions. When someone like Jamie Dimon starts talking about cockroaches, we should take notice. Any sensible pension fund would be treating private credit with huge caution at the moment, but this is specifically one of the asset classes that the Government want to encourage and mandate. Government mandation of asset allocation has no place in the regulation of pensions. The fiduciary duty should remain sacrosanct. I urge all noble Lords to support the noble Baroness, Lady Bowles, in her amendment.

[Baroness Altmann (Non-Afl)]

My Lords, I agree with every word that the noble Lord, Lord Vaux, has just said. I declare my interests as a non-executive director of a pension administration company and a board adviser to a master trust. I support all the amendments in this group, but I shall speak particularly to Motion E1 so ably moved by the noble Baroness, Lady Bowles.

A fiduciary obligation is one of the highest standards of duty in common law, yet this Bill would override the best judgment of trustees. Although the 5% and 10% amendment laid by the Government is welcome, it does not deal with issues such as those outlined by the noble Baroness, Lady Bowles, and the noble Lord, Lord Vaux. If trustees do not believe that the case for, for example, private assets is strong enough, they will still have to buy them or they will not be able to participate in auto-enrolment. This is not incentivisation. Incentivising financially, perhaps via tax reliefs, would change the calculation of the potential outcomes, but mandation does not do that.

The dangers of mistiming are clear. A McKinsey study published in February shows that, for example, private equity is under structural strain with constrained liquidity, valuation uncertainty and returns that have been weaker. As the noble Lord, Lord Vaux, outlined, the same applies to private credit, particularly that held in open-ended fund structures. In infrastructure, we have recently seen the returns offered for solar power degraded from in line with RPI to in line with CPI, which has put international investors off some of the infrastructure opportunities in the UK.

If the Government persist in their idea that closed-end funds, which are much more appropriate and have their own diversified, expertly managed portfolios of qualifying assets cannot qualify, that simply further reinforces the idea that the Government does not know best and that it is not safe for this House to authorise the Government to mandate these investments. Not all pension funds have the in-house capability to manage alternative or illiquid assets. Just being large does not give them instant expertise. Australian and Canadian funds have taken decades to build up this kind of ability. A strict time limit simply does not and cannot fit with the requirements that the Government seek to impose on pension schemes. I hope that noble Lords will stand firm in the resolve to send this back to the other place.

[Lord Remnant (Con)]

My Lords, this is probably the final time that noble Lords will have the dubious pleasure of hearing from me, and I assure the House that I will be brief. I wholeheartedly support Motion E1 in the name of the noble Baroness, Lady Bowles, and all the remarks that have been very supportive of that that noble Lords have made to date for the reason that she has so eloquently expressed. I also very much support her remarks about the unwarranted discrimination in this Bill against investment companies. Suffice it to say that a provision that is wrong in principle is not rectified or remedied by restricting the width of its application in the Government’s amendment.

I would like to venture just one additional observation. As we have heard, the Mansion House Accord is a voluntary agreement specifically targeted at UK assets to drive growth and improve returns. It aims to improve financial outcomes for savers while supporting UK economic growth, one of the Government’s core objectives. It is necessarily a voluntary initiative expressly subject to fiduciary duty and consumer duty, and it is dependent on implementation by the Government and regulators of critical enablers. Yet here is the rub: had the industry’s best intentions towards investing in private markets not been formalised in this way, there would be nothing for us to discuss here today. There would be nothing for this reserve power to backstop, so it would be redundant. Given the Government’s expressed intention never to use a reserve power, they would hardly be putting forward a primary power to compel institutions to invest moneys in ways in which they—the Government—see fit. At the time of the signing of the Mansion House Accord, there was no indication that the agreement would be anything other than voluntary and that the Government were proposing to take the powers of compulsion now proposed. I believe that the signatories entered into this accord with the best of intentions and with every expectation of meeting their commitments, and I believe that they will do so, but there is no certainty that they will not be blown off course, whether through scarcity of available opportunities or otherwise.

Should that happen, this or any future Government could undoubtedly consider the use of the reserve power that the Bill grants them. There is every reason to believe that the industry’s perhaps justifiable reasons for falling short would not find favour with the Government, and that the interpretation of the caveats built into a voluntary accord in terms of fiduciary duty, consumer duty and regulatory and governmental enablers would be disputed and the caveats overridden. All in all, it would be a mess, and City institutions would rue the day they had tried to be helpful towards the Government in playing their part in meeting their growth objectives.