Pension Schemes Bill

Baroness Bowles of Berkhamsted Excerpts

Thursday 18th December 2025 Lords Chamber

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I declare my interests as a director of the London Stock Exchange and of Valloop Holdings Ltd. I also have experience engaging with local authorities and their pension funds, in relation to both funding proposals and policy. I congratulate the noble Baroness, Lady White of Tufnell Park—she is no longer in her seat—on her excellent maiden speech. I welcome her to this House and look forward to her future contributions.

Like other noble Lords, I welcome much of this Bill, and my reflections are directed at what is missing or where small but significant adjustments could deliver real benefits for scheme members. I shall give some examples. When engaging with local authority fund managers on social impact investing, I found that while they valued local options, they also wanted diversity through investing in similar localised assets but beyond their immediate region. An amendment to reflect that flexibility, perhaps in Clause 2, concerning local and localised investments, may be worth considering.

On scale tests and value for money, should there not be some kind of linkage? Presently, some of the best performers in the DC market have assets under £10 billion. If such schemes deliver outstanding benefit for members, as demonstrated in value for money assessments, should they not be allowed to continue? Other issues in this space include whether the definition of “hybrid” is wide enough and whether the focus on forward looking metrics risks dismissing past performance, which surely still has relevance.

I also hope that some solution can be found for the many schemes in the charity and social housing sector that are disallowed from using retrospective confirmation measures due to an ongoing legal review. Concerns also remain about the PPF’s recent pre 1997 increases in the wind up trigger for DB superfunds, which create issues for funding levels and viability. Additionally, gateway test 1—that if a scheme is funded to buyout level it cannot enter a superfund—seems to prevent schemes augmenting member benefits via a superfund. Is that fair?

I turn to trustees’ fiduciary duty. It is undeniable that the Government have opened a Pandora’s box by taking the power of mandation, even if it is intended as a reserve power. I happen to think it is about time Pandora’s box was opened, emptied and hope allowed to get out, at least on interpretation of fiduciary duty. However, it is essential that this be done in primary legislation. Regulatory guidance or an SI is not enough. We are already seeing banks stung for compensation on car loans when lenders followed flawed guidance from the FCA.

Systemic issues such as the resilience of the UK economy and ESG are not abstract considerations; they directly affect pension scheme members’ long term retirement outcomes. Climate breakdown, financial crises and economic instability all influence the value of investments, the type of investments that need to be made in future and the returns available to members over time. They also determine how far pensions will stretch when drawn. These factors should already be integral to fiduciary considerations, requiring trustees to balance risk mitigation with support for long term stability. Yet trustees remain concerned about how to demonstrate alignment with member outcomes, even though investment results of any kind can never be guaranteed. Clarifying in this Bill that systemic factors are legitimate concerns would help.

At the same time, by naming and favouring certain vehicles, the Bill risks going too far and putting trustees in jeopardy. It could cause herding, market distortions and valuation bubbles and discriminate between comparable structures while failing to provide a safe harbour for trustees regarding financial benefit. The only way to achieve definite financial benefit would be through tax penalties for failing to meet mandated allocations, a possibility noted by the noble Baroness, Lady Altmann.

We have already seen the dangers of herding in both DB and DC schemes, driven by regulatory and advisory consensus. Advice focused on global indices, coupled with regulatory encouragement, led to a retreat from UK equities, an overreliance on gilts and the use of nested leverage through repo borrowing, culminating in the LDI crisis. The only accepted defence that trustees have is that they take advice, but it is from unregulated advisers. While many are excellent, some were noticeably reticent when this House’s Industry and Regulators Committee investigated LDI. We found it striking that such influential advice was not regulated, unlike advice to individuals. This should be addressed, perhaps by making it a designated activity under FSMA.

I turn now to the discrimination against listing. The Government mandate investment into private assets but exclude that investment from being via listed entities, despite their ability to provide superior liquidity. Not all listed entities operate in the same way, and I am going to have to explain that later. It is openly acknowledged that the Mansion House provisions reflected in this Bill are tailored to LTAFs, the new long-term asset funds, which are themselves a variation on the EU’s LTIFs—the long-term investment funds developed during my time as chair of the EU’s ECON Committee. At that time, the UK rejected implementing LTIFs, with the Treasury assuring me that we did not need them because we had listed investment funds, also known as investment companies and trusts, which were better. Yet, under this Bill, they are explicitly excluded, even when investing in the prescribed assets, as the alt sector does.

This exclusion is extraordinary. Before the mistaken, and now nearly corrected, regulatory cost disclosure and cost cap debacle, listed investment funds were favoured by local authority pension funds precisely because they financed local UK infrastructure such as schools, hospitals and renewables, and provided venture capital to growth companies. Those local authority pension funds were major investors at IPO and follow on stages, often for the local infrastructure they were subscribing to. Many retail investors hold listed investment funds in their portfolios for similar reasons.

I have recently been told that somewhere in the Treasury there is a belief that listing and then trading shares is not new money. Interestingly, the noble Baroness, Lady Noakes, whom I very much respect and often find myself in common cause with, also made that point. That is not the proper story if you are looking at a listed investment fund. Listing is what keeps the underlying investment funding in place so that it is not sold out for redemptions, as happens with open ended funds like LTAFs. In fact, the way in which money is raised and then put into investments is a similar procedure to that of an LTAF or any other open-ended fund. The only difference is a clever trick: instead of having to sell off the investments if somebody wants to get liquidity and withdraw their shares, the shares can be traded on the market and there is no damage to the underlying investment. That does not seem to have been recognised in the provisions in the Bill.

It is interesting that even some LTAF providers have contemplated investing in listed investment companies because they want the liquidity, and that will enable them to stay listed in productive assets for longer while still having the safety of being able to trade and get their money if they need more money for paying pensions, so why discriminate against them? The fact is they are complementary investments. They are often going to be smaller and local-sized, as opposed to massive. They can be used in combination with LTAFs and it is very foolish and stupid thing to exclude them. I will certainly be tabling an amendment to try to adjust that.

Overall, it is about time that the Government’s discrimination and denigration of listed investment companies end. I say “denigration” because there is damage done to these companies by this wording in the Bill. How many times has this House talked about having to improve the state of our stock exchange, both for listed companies of the operating variety and for listed funds? What do we do at every turn? The Government and the Treasury do not understand and, here, seem to be undoing a lot of the good work they have tried to do in all the listing reviews.

The Bill contains important reforms, but it must not undermine fiduciary duty, encourage herding or exclude proven vehicles that deliver value. With constructive amendments, we can ensure that it strengthens pensions while saving members’ long term outcomes and delivering for the UK economy.