Parental Leave and Pay Review

Baroness Sherlock Excerpts

Tuesday 20th January 2026 Lords Chamber

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

My Lords, the parental leave and pay review launched on 1 July 2025, and we expect it to run for a period of 18 months. The review will conclude in early 2027 with a set of findings in which the Government will outline next steps for taking any reform forward to implementation.

[Baroness O'Grady of Upper Holloway (Lab)]

My Lords, I thank my noble friend for that Answer, but does she accept that the case for change is urgent? Most forms of parental leave are unpaid or pitifully low paid: £187 a week equates to less than half the national minimum wage, and many mums and dads and partners simply cannot afford to take the pay cut necessary to spend time with their babies and children. The benefits are clear: there is compelling evidence that if, for example, paternity leave were increased to six weeks at 90% of pay, that would improve economic participation and growth and, of course, narrow the gender pay gap. Will my noble friend agree to consider urgently bringing the conclusions of the review forward so that young families can get the start in life they deserve?

[Baroness Sherlock (Lab)]

My Lords, I pay tribute to the advocacy not only of my noble friend but of her former employer, the TUC. The Government have met with many stakeholders and had many encouragements to act in lots of different directions. My noble friend is absolutely right that the system needs reform. We know that it does not work for everybody at the moment. Having a child is a joyous occasion, but it is a challenge for many parents. We need to get this right. The Government opened a call for evidence, and we had almost 1,500 responses. We need to consider those carefully and find a way forward that provides a proper balance for employers, employees and the Exchequer. We will get this right.

[Baroness Penn (Con)]

My Lords, the Minister referred to the call for evidence, which closed in August. I appreciate that there were around 1,300 responses, but it has been five months since then, with not a word of an update from the Government. Could we get an update from the Minister now on progress in that last five months and a clear timetable for what the Government will spend the next 12 months doing?

[Baroness Sherlock (Lab)]

My Lords, we are doing a number of different things. We are engaging in detail with stakeholders. We have already held 12 round tables, and we have engaged with business groups, academics and parent groups, including the CBI, the Federation of Small Businesses, the TUC, The Dad Shift, Mumsnet, and Maternity Action—lots of them. We are working through this with many academics, gathering all the evidence, finding out what we can do and looking at international comparisons. We are simply not doing nothing for the moment. We have already made a significant number of differences. The Government have introduced a range of things, such as neonatal care leave and pay, and we are looking at paternity leave and unpaid parental leave as day one rights, and at new leave for bereaved parents. There are a number of steps happening now, and we will look at whether there are things that can be introduced, and when, but we do have to get this right.

[Lord Palmer of Childs Hill (LD)]

My Lords, I thank the Minister very much for all the things that are happening, but can she confirm whether this urgent review—the word “urgent” was used—will look specifically at low-paid and self-employed parents, who are often excluded from adequate support? I did not hear the Minister mention them at all.

[Baroness Sherlock (Lab)]

The noble Lord raises a very important point. I am pleased to say to him that, yes, the review is considering specifically whether the current support available meets the needs of self-employed parents. That is explicitly referred to in the review’s terms of reference. He is right that, currently, self-employed mothers can get maternity allowance but self-employed fathers are not eligible for support. There are some challenges. The bigger challenge is that the scheme goes back to the late 1800s, and a lot of aspects of modern families and the modern workplace are not necessarily reflected in its structure. We are looking at all of that.

[Baroness Jones of Whitchurch (Lab)]

My noble friend has described all the action being taken already on this issue, which was a very important part of our debate on the Employment Rights Bill. We heard some compelling arguments then about the importance of making progress on this issue. In light of all the meetings my noble friend has described, is she prepared to convene a meeting of Peers on a cross-party basis to update us and make sure that the voices around the Chamber are also heard appropriately?

[Baroness Sherlock (Lab)]

My Lords, I thank my noble friend for that and pay tribute to all the wonderful work she did on the Employment Rights Bill. The whole country has good reason to be grateful to her. I am sure she still bears the occasional scar, which she may polish occasionally. That is a great idea; we would be happy to have a meeting. I want to manage expectations. We are going to listen to all the evidence and a wide range of voices, but it would be helpful for those voices to come from inside this House as well as outside. I would be very pleased to do that.

[Viscount Younger of Leckie (Con)]

My Lords, it is anticipated that there will be a chilling factor, with businesses thinking twice about hiring mothers-to-be and fathers-to-be if there are parental rights from day one. Is there not a danger that businesses will find ways of pre-emptively rejecting candidates whom they believe will be in a position to take parental leave immediately or soon after taking up their new roles?

[Baroness Sherlock (Lab)]

My Lords, leave from day one is about the ability to give notice. For statutory maternity and paternity pay, there is already a significant period of qualification of working for the employer. If the noble Viscount is seriously suggesting that businesses would reject all potential mothers and fathers, that is going to leave them with quite a small pool to choose from when they are selecting. The reality is that many businesses already recognise that there are genuine benefits to be had in enabling people to be productive. If people are worrying about what is happening at home, then they are not able to do that. However, we have to get the balance right, so the review will carefully weigh up the benefits for families against the impact on employers and the Exchequer before Ministers decide on any reforms. On that point he is absolutely right.

[Lord Fox (LD)]

My Lords, in order for us to plan our workflow over the next couple of years, can the Minister let us know how many other consultations are still under way and how many more reviews will be conducted before the Employment Rights Bill is enacted?

[Baroness Sherlock (Lab)]

My Lords, the Government will consult with employers and those who are going to be affected to make sure that the implementation of the decisions Parliament has already made is done appropriately. I make no apologies for that, and the House should welcome it.

[Baroness Penn (Con)]

My Lords, the Minister talked about the evidence needed. When Quebec introduced five weeks of paid paternity leave 20 years ago, not only did it increase the take-up and length of leave taken by dads, but it increased mothers’ labour-market participation by around 7%. Does the Minister accept that, based on the information available to us today and for the last 20 years, six weeks of paid paternity leave is the single biggest policy the Government could implement to close the motherhood pay penalty? There is a good growth case for introducing it and we do not need another 12-month review to reach those conclusions.

[Baroness Sherlock (Lab)]

Despite discouragement from behind me, I am going to be gentle about this. The noble Baroness makes the important point that there is a lot out there to be learned. We are looking at the international evidence. In Great Britain we tend to be more generous with leave than, for example, other OECD nations, but we do not match up on pay. As part of the review, we have been looking at international comparisons to see what happens, recognising that there are of course differences in labour markets and tax regimes. We must be aware of the impact on our particular context. Certainly, I am hearing a lot of clear voices calling for fathers to have more paternity leave. One of the things we need to be aware of is that when shared parental leave was previously introduced, take-up was very low indeed. We need to make sure the system works well, rather than just diving into making changes.

[Lord Watts (Lab)]

Does the Minister agree with me that there is no future for Britain unless it gets out this situation of low skills, low pay, poverty wages and poor conditions, with some of the worst employment and pay rates in Europe?

[Baroness Sherlock (Lab)]

My Lords, I think the noble Lord has been listening to my colleague and noble friend Lady Smith of Malvern. This Government are committed to driving up skills as a way of driving out the growth in unemployment in this country. We must invest in the skills that are out there, making sure our young people get skills, that people have the chance to re-skill, and that we give employers the skills they need. Through our industrial strategy, we are looking at some of the key growth areas, making sure we understand what will drive them, what they need in future staff, and how we invest in them. Better-skilled jobs are good for the economy and good for families. That is the way forward.

[Lord Hunt of Wirral (Con)]

My Lords, when we dealt with the Employment Rights Bill, just before Royal Assent there was a draft implementation plan, which the noble Lord, Lord Fox, referred to. We were promised that the Government would publish a new, revised implementation plan on or around Royal Assent, but we are still waiting. When is it going to come?

[Baroness Sherlock (Lab)]

My Lords, I have no idea. I will find out what is happening and, if there is anything out there, I am happy to write to the noble Lord with it. However, I tell him this: we had lots of long battles in this House over the Employment Rights Bill but it is now an Act, and it is surely now time for all of us to make sure that we engage well, listen to employers and take the time to get this right for the benefit of staff and employers everywhere, and of the country.

Pension Schemes Bill

Baroness Sherlock Excerpts

Committee stage
Monday 19th January 2026 Grand Committee

[Baroness Stedman-Scott (Con)]

My Lords, when I entered the department in July 2019, defined benefit pension schemes did, on occasion, report surpluses. However, those surpluses were neither of the scale nor the character that we are now observing. If one looks back over the past quarter of a century and beyond, it is evident that both the funding position of defined benefit schemes and the methodologies used to assess that funding have changed materially.

The surpluses reported today are not simply large in absolute terms but different in nature. They are measured against significantly more prudent assumptions, particularly in relation to discount rates, longevity and asset valuation, than would have been applied historically. It is therefore right that these emerging surpluses are examined with care and transparency. Bringing them into the open is necessary, and I say at the outset that the Government are right to have raised this issue explicitly in the Bill.

That said, we consider that the Bill does not yet fully reflect a number of the practical and operational issues faced by both trustees and sponsoring employers when seeking to make effective use of those provisions. In that respect, our position is not materially distant from that of the Government. Our concerns are not ones of principle but of application and implementation. We recognise that issues relating to potential deadlock between trustees and sponsors are important, but we are content for those matters to be considered at a later stage in the Committee’s proceedings. Our immediate focus is on understanding how the proposals are intended to operate in practice, how decisions are expected to be taken within existing scheme governance arrangements and how these new powers interact with established trustee fiduciary duties and employer covenant considerations.

This is a busy group, and noble Lords have done a sterling job in setting out their reasoning and rationale. I shall, therefore, not detain the Committee further by relitigating those points but will speak to my Amendment 25 in this group. Like a number of our amendments in this part of the Bill, it is a probing amendment intended to seek clarity. Clause 9 inserts new Section 36B into the Pensions Act 1995. The new section gives trustees of defined benefit trustee schemes the ability by resolution to modify the schemes’ rules so as to confirm a power to pay surplus to the employer or to remove or relax existing restrictions on the exercise of such a power.

The clause contains one explicit limitation on that power. New Section 36B(4) provides that the section does not apply to a scheme that is being wound up. In other words, wind-up is the only circumstance singled out in the Bill in which the new surplus release modification power cannot be used. Amendment 25 would remove that specific exclusion, and I want to be clear that the purpose of doing so is not to argue that surplus should be released during winding-up; rather, it is to test the Government’s reasoning in identifying wind-up as the sole circumstance meriting an explicit prohibition in primary legislation.

By proposing to remove subsection (4), the amendment invites the Minister to explain whether the Government consider wind-up to be genuinely the only situation in which surplus release would be inappropriate or whether there are other circumstances where the use of this power would also be unsuitable. If those other safeguards are already captured elsewhere, it would be helpful for the Committee to have that clearly set out on the record. Equally, if wind-up is used here as a proxy for a broader set of concerns, the Committee would benefit from understanding why those concerns are not addressed more directly.

Surplus release is a sensitive issue. The way in which the boundaries of this new power are framed therefore matters. Where the Bill chooses to draw a line in the legislation, it invites scrutiny as to why that line has been drawn there and only there. This amendment is intended to facilitate that discussion and to elicit reassurance from the Minister about how the Government envisage this power operating in practice and what protections they consider necessary beyond the single case of wind-up. On that basis, I look forward to the Minister’s response and any clarification she can provide to the Committee.

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

My Lords, I am grateful to my noble friend Lord Davies of Brixton and the noble Baroness, Lady Stedman-Scott, for explaining their amendments, and to all noble Lords, who have spoken so concisely—we positively cantered through that group; may that continue throughout the day.

It is worth saying a word about the Government’s policy intent, but let me start by saying that the DB landscape has changed dramatically, a point made by the noble Baroness, Lady Stedman-Scott. Schemes are currently enjoying high levels of funding. Three in four schemes are running a surplus and there is around £160 billion of surplus funds in the DB universe. Schemes are also now more mature. The vast majority minimise the risk of future volatility with investment strategies that protect against interest rate and inflation movements. In addition, the DB funding code and the underpinning legislation require trustees to aim to maintain a strong funding position so that they can pay members’ future pensions. In response to the noble Lord, Lord Palmer, that is the primary purpose of DB funding schemes: above all, they must be able to pay members’ pensions. That is what is set out quite clearly in the DB funding code and the underpinning legislation. That is overseen by the Pensions Regulator.

--- Later in debate ---

[Lord Kirkhope of Harrogate (Con)]

I am sorry to interrupt the Minister. I raised the question of safeguards. There is a lot of evidence in the industry that there is a lot of pressure. The Minister talks about the driving seat, but the actual installation of the driver into the car is at the behest of employers. It seems to me that there is likely to be some pressure here, perhaps more pressure than before. I just want to be sure that the safeguards are in place—we are perhaps going to be discussing these later—including safeguards for the trustees, who have the basic obligation of doing the best for the beneficiaries of the scheme. To what extent are they going to be protected in circumstances like that?

[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.

--- Later in debate ---

[Baroness Sherlock (Lab)]

My Lords, I am grateful to all noble Lords— that was a very interesting debate. I will come to some of the detail in a moment. I am grateful to the noble Baroness, Lady Altmann, the noble Lord, Lord Palmer of Childs Hill, and the noble Viscount, Lord Thurso, for explaining their amendments.

We do not have a smorgasbord here, as I think the noble Lord, Lord Palmer, observed. Essentially, Amendments 26, 32, 38 and 39 would, in different ways, allow regulations to require member benefit enhancements prior to surplus release, require regulations to do so, and require trustees to consider indexation and the value of members’ pensions before making a surplus payment.

I say at the outset that I understand the concerns of scheme members whose pensions have not kept pace with inflation. They may have made contributions for many years and are understandably upset at seeing inflation erode the value of their retirement income. But I am afraid that I am not able to accept these amendments, for reasons I will explain.

I will give a bit of context first, because it is worth noting that over 80% of members of private sector DB schemes currently get some form of pre-1997 indexation on their benefits. However, as I explained in the previous group, we think the way forward is that our reforms will give trustees greater flexibility to release surplus from well-funded DB schemes and will encourage discussion between employers and trustees on how those funds can be used to benefit members.

In response to the final question from the noble Viscount, Lord Younger, about deadlock-breaking, we do not think it is necessary because, in a sense, it is not a balanced position between employers and trustees. Trustees are in control. Employers cannot access surplus directly. Trustees are the ones who make a decision. If the trustees do not agree to release the surplus, the surplus is not being released. In a sense, it is quite intentional for the power to sit with the trustees, and that is the appropriate way to manage that issue. We think that that way of putting trustees in the driving seat is a better approach than legislating for how surplus should be used. I found that discussion of history, from the noble Baroness, Lady Noakes, the noble Lords, Lord Willetts and Lord Fuller, and others, very helpful.

The DB landscape is a complex situation. It has a varied history and there are variations within it: within schemes, over time, between schemes, across time and across the landscape. Benefit structures have varied, in many cases over the course of a scheme’s history. Although some schemes may not provide pre-1997 indexation, they may have been more generous; they may have been non-contributory or may have provided a higher accrual rate at different points in time. All schemes are different. That is why we do not think it is possible to provide an overall requirement on schemes for indexation. We think it is better that trustees, with their deep understanding of the knowledge of individual schemes, their characteristics and history, remain at the heart of decision-making in accordance with their fiduciary duties. In addition, of course, as I keep saying, they must act in the interests of scheme beneficiaries.

[Viscount Thurso (LD)]

I am grateful to the noble Baroness for her explanation. However, does she agree that a case where the employer has the right to prevent the trustees making a payment—with some surpluses, the trustees may wish to make a payment but the employer can stop it if it is not going to them—is a special case, which needs to be looked at slightly differently?

[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?

--- Later in debate ---

[Baroness Sherlock (Lab)]

Absolutely. There may be—I am not saying that there are—risks that need to be explored around the use of sole corporate trustees. The consultation will look at that, and at generally improving the quality and standards of administration to improve service quality and so on. That runs until 6 March. My noble friend may wish to contribute to it; I commend it to him.

On safeguards, trustees will need to notify the regulator when they exercise the power to pay surplus. As part of that notification, we anticipate the provision to be made in regulations for trustees to explain how, if at all, members have benefited because that will help the regulator monitor how the new powers are being used.

In response to the noble Viscount, Lord Thurso, the Pensions Regulator has already set out that trustees should consider the situation of those members who would benefit from a discretionary increase and whether the scheme has a history of making such increases. Following this legislation—and as I may have said in the previous group—TPR will publish further guidance for trustees and advisers, noting factors to consider when releasing surplus and ways in which trustees can ensure members and employers can benefit.

On that broader point, we feel that it must be a negotiation, because increasing indexation would increase employer liabilities, so it is right that it ends up being a negotiation. All the safeguards are already there. My noble friend Lord Davies asked what advice trustees should take. We expect trustees to take appropriate professional advice when evaluating a potential surplus release and making a payment. As well as actuarial advice, this should also include legal advice and covenant advice to enable trustees to discharge their duties properly. Let us not forget that a strong covenant is the best guarantee a scheme has; not undermining the covenant, or the employer that stands behind it, is crucial to this.

Amendment 44 would require the Secretary of State to publish a report on whether trustees’ duties should be changed to enable trustees to pay discretionary increases on pre-1997 accrued rights. It is not clear to us why this would be needed as the scope of trustee fiduciary duties do not prevent trustees paying discretionary increases, where scheme rules allow them to do so. We expect trustees to consult their professional advisers, including lawyers, on their duties if they are not sure.

Amendment 41 from the noble Lord, Lord Palmer, highlights the importance of ensuring that members have access to good quality pensions advice. Although we understand the intention, we remain clear that we will not be mandating the use of surplus released from schemes. My noble friend Lord Davies made the good point that, in some ways, the greatest need for support is on the DC side rather than the DB side. DB scheme members expect to receive a lifelong retirement income, which trustees must regularly and clearly communicate to members. This is typically based on salary and length of service, offering strong financial security. For DB, the benefits they will receive on retirement are generally known.

The Government recognise the importance of robust guidance, however, and we already ensure that everyone has access to free, impartial pensions guidance through the Money and Pensions Service, helping people to make informed financial decisions at the right time. The MoneyHelper service offers broad and flexible pensions guidance that supports people throughout their financial journey.

A couple of other questions were asked, including what employers will use the surplus for. The Pensions Regulator published a survey last year, Defined benefit trust-based pension schemes research. In a sample of interviews, it found around 8% of schemes with a funding surplus reported having released a surplus in the last year. That equates to nine schemes. Of those nine, seven schemes used the surplus to enhance member benefits. One used it to provide a contribution holiday for future DB accrual and one to make a payment to a DC section established in the same trust. None of the nine schemes stated that the surplus was released to the employer.

In answer to the noble Lord, Lord Willetts, and my noble friend Lord Davies, it was always the case that it depends on the scheme rules. I want to make sure I get this right. I had a note somewhere about it, but I am having to wing it now so I will inevitably end up writing and correcting it. If there is a DB and a DC section in the same trust, it could be possible, depending on the scheme rules, for trustees to make a decision to release funds from one to the other. But trustees may not be able to agree to that; it would obviously depend on the circumstances. However, as I understand it, there is nothing to stop an employer releasing funds—surplus released from a DB scheme back to an employer. The employer could then choose to put that money in, for example, a DC scheme. I understand the tax treatment would be such that the tax payable on one can be offset as a business expense on the other, making it a tax neutral proposal. In any case, as noble Lords may have noted, the tax treatment of surplus rate has dropped from 35% to 25%. A decision has been made to make that drop down. If by winging it I have got that wrong, I will clarify that when I write the inevitable letter of correction.

My noble friend Lord Davies asked about tax treatment. I will read this out, as it is from the Treasury, and I will be killed if I get it wrong. Amendments to tax law are required to ensure these payments—one-off payments—qualify as authorised member payments and are taxed as intended. The necessary changes to tax legislation will have effect from 6 April 2027. Changes to tax legislation are implemented through finance Bills and statutory instruments made under finance Acts. There will be consequential changes to pensions legislation where necessary, which will be dealt with through regulations. I hope that satisfies my noble friend. If it does not, I will write to him at a later point.

I hope I have covered all the questions. I am really grateful for that contribution; it is one of the ways in which this Committee illuminates these matters. But I hope, having heard that, the noble Baroness feels able to withdraw her amendment.

[Baroness Altmann (Non-Afl)]

I thank the Minister for her explanation. Although it is rather disappointing, I understand where she is coming from. I also thank all noble Lords who have participated in this group. There is a general feeling across the party divides—but obviously not unanimity—that lack of inflation protection is an issue. How or whether it is dealt with is the big question. I hope that maybe we can all meet and discuss this and how it could best be brought back on Report, if it is going to be brought back. With that, I beg leave to withdraw the amendment.

--- Later in debate ---

[Lord Fuller (Con)]

I support my noble friend Lady Noakes in her assertion that members’ interests are already taken into account on many trustee boards. In fact, all but the very smallest schemes have procedures and requirements to appoint member-nominated trustees. It is almost so obvious that it is hardly worth saying, but it is the truth. It is the job of the member-nominated trustees, not the unions or the members themselves, to represent the interests of that cohort. Even the local government scheme has arrangements whereby the needs of the employers and the employees are balanced, so it is not just a question of the private schemes; all schemes have those balances as a principle, and that is entirely appropriate.

I am disappointed to disagree with the noble Lord, Lord Davies, because I felt we got on so well in the previous two days in Committee, but, on this occasion, I part company with him. I do not think his amendments are needed, because of the existence of that member-nominated trustee class. It is their job, and if the members do not like it, they can get another one.

[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.

--- Later in debate ---

[Viscount Younger of Leckie (Con)]

My Lords, we understand that these amendments are doing something that is really quite straightforward and, in our view, sensible. The amendments in the name of the noble Baroness, Lady Altmann, would ensure that, before any surplus is extracted, the relevant actuary has confirmed that the work required under the Financial Reporting Council’s technical actuarial standards of risk transfer has been completed. In other words, they would ensure that trustees and sponsors have properly considered the scheme’s credible endgame options, whether that is bulk transfer, run-on or another long-term strategy, rather than looking at surplus in isolation.

I was pleased to listen to this interesting debate, commenced by the noble Baroness, Lady Altmann, with her strong reference to the TAS 300 exercise and the link to insurance. She mentioned the reinsurance market and the subsequent debate, as well as the amount of money potentially in play—£200 million, I think. Surplus extraction ought to sit within a wider assessment of the scheme’s long-term direction, the securities of members’ benefits and the financial implications for both the scheme and the sponsor. Requiring confirmation that this work has been done would help anchor surplus decisions in that broader context.

This has been a very brief speech from me. We see these amendments as a proportionate safeguard, reinforcing good governance and ensuring that surplus payments are considered alongside—not divorced from—the scheme’s long-term endgame strategy. I look forward to the response from the Minister.

[Baroness Sherlock (Lab)]

My Lords, I am grateful to the noble Baroness, Lady Altmann, for setting out her amendments. I am also grateful to all noble Lords who have spoken. I must admit that I have learned more about actuaries in the past week than I ever knew hitherto, but it is a blessing.

Three different issues have come up. I would like to try to go through them before I come back to what I have to say on this group. In essence, the noble Baroness, Lady Altmann, has us looking at, first, actuaries: what is their role, what are the standards and how do they do the job? Secondly, what are the right endgame choices—that is, what is out there at the moment? Finally, what should be in the surplus extraction regime? We have ended up with all three issues, although the amendments only really deal with the last of those; they deal with the others by implication. Let me say a few words on each of them, then say why I do not think that they are the right way forward.

We have just finished hearing from the noble Lord, Lord Fuller. Obviously, we are talking about the position now. DB schemes are maturing and, as such, are now prioritising payments to members. Given this context, they are naturally more risk-averse, as they are now seeking funding to match their liabilities. Since the increases in interest rates over the past five years, scheme funding positions have—the noble Lord knows this all too well—improved significantly in line with their corresponding reductions and liabilities.

However, when setting an investment strategy, trustees must consider among other things the suitability of different asset classes to meet future liabilities, the risks involved in different types of investment and the possible returns that may be achieved. The 2024 funding code is scheme-specific and flexible. Even at significant maturity, schemes can still invest in a significant proportion of return-seeking assets, provided that the risk can be supported.

On actuaries, actuarial work is clearly an important part of the process. It helps set out the picture, as well as highlighting the risks, the assumptions and the available options, but it does not determine the outcome. My noble friend Lord Davies is absolutely right on this point. Decisions on how a scheme uses the funds are, and will remain, matters of trustee judgment. The role of the actuary is to support the judgment, not replace it. Trustees are the decision-makers, and they remain accountable for the choices that they make on behalf of their members.

Of course, in providing any certification, actuaries will continue to comply with the TAS standards set by the Financial Reporting Council. I am not going to get into the weeds of exactly how the standards work but, on the broader points made by the noble Baroness, Lady Altmann, we agree that the requirements and the regulations must work together. As my noble friend said, after the funding regime code was laid, the FRC consulted on revisions to TAS 300 covering developments; it has now published the revised TAS. These are complex decisions. Regulators need to work together. We will come back to this issue later on in the Bill, following an amendment from the noble Baroness, Lady Coffey.

In terms of the endgame choices, the independent Pensions Regulator has responsibility for making sure that employers and those running pension schemes comply with their legal duties. Obviously, the Government are aware of the recent transaction that resulted in Aberdeen Asset Management taking over responsibility for the Stagecoach scheme; we are monitoring market developments closely. Although we support innovation, we also need to ensure that members are protected. Following the introduction of TPR’s interim superfund regime and the measures in this Pension Schemes Bill, we understand that new and innovative endgame solutions are looking to enter the DB market and offer employers new ways to manage their DB liabilities. I assure the noble Baroness that we continue to keep the regulatory framework under review to ensure that member benefits are appropriately safeguarded.

Then, the question is: what is the right thing to be in the surplus extraction regime? I know that the noble Baroness, Lady Altmann, is concerned that, following these additional flexibilities to trustees around surplus release, trustees continue to consider surplus release in the context of the wider suite of options available to their scheme, including buyout, transfer to a superfund or other options beyond those. Following these changes, trustees will remain subject to their duty to act in the interests of beneficiaries. As such, we are confident that trustees will continue both to think carefully about the most appropriate endgame solution for their scheme and to act accordingly. For many, that will be buyout or transferring to a superfund, rather than running on.

Let me turn to what would happen with these amendments specifically. Amendment 33 would link the operation of the surplus framework to existing standards on risk transfer conditions in TAS. In essence, it seeks to ensure the scheme trustees have considered a potential buyout or other risk transfer solution before surplus can be released. Amendment 33A has a similar purpose; again, it aims for trustees, before they can release surplus, receiving a report from the scheme actuary assessing endgame options and confirming compliance with TAS.

Although I appreciate the noble Baroness’s intention to ensure that trustees select the right endgame for their scheme, these amendments are not needed because trustees are already required, under the funding and investment regulations, to set a long-term strategy for their scheme and review it at least every three years; that strategy might include a risk transfer arrangement. Furthermore, although I know the noble Baroness has tried to minimise this, hardwiring any current provisional standards into the statutory framework could have unintended consequences, including reducing flexibility for trustees and requiring further legislative or regulatory changes to maintain alignment as these standards evolve over time.

We are back to the fact that, in the end, trustees remain in the driving seat with regard to surplus release. As a matter of course, TPR would expect trustees to take professional advice from their actuarial and legal advisers; to assess the sponsor covenant impact when considering surplus release; and to take into account relevant factors and disregard irrelevant factors, in line with their duties. We are working with the Pensions Regulator regarding how schemes are supported in the consideration of surplus-sharing decisions. The new guidance already considers schemes as part of good governance to develop a policy on surplus. TPR will issue further guidance on surplus sharing following the coming into force of the regulations flowing from the Bill, which will describe how trustees may approach surplus release and can be readily updated as required. Alongside the Pensions Regulator, we will work with the FRC to ensure that TAS stays aligned.

I am grateful for the noble Baroness’s contribution and the wider debate, but I hope that she will feel able to withdraw her amendment.

[Baroness Altmann (Non-Afl)]

I thank the Minister and everybody else who has spoken. I have enormous respect for the noble Lord, Lord Davies, and take what he says seriously. I am most grateful for the support of the noble Lord, Lord Fuller.

I make no apology for the technical nature of these amendments, but I apologise that they had to be shoehorned in; this is such an important issue, though. This environment of higher inflation risk, excessive prudence and hoarding of surpluses is damaging pension adequacy. The de-risking overshoot has sucked innovation, energy and impetus out of the pension system and the economy. Indeed, the chair of the trustees of Stagecoach described to me that he faced what he termed co-ordinated and insidious behind-the-scenes lobbying against the trustees’ aim to try to obtain better pensions for their members; he also said that the lobbying was in favour of annuitisation as the best option for the scheme.

There is no lobbying for either improving member benefits or giving a lot more money back to employers at the moment. If we were able to get an amendment such as this one into the Bill, so that everybody must consider the range of available options plus innovative strategies, I would hope that the outcome of the Bill would be much better, more productive use—which is the aim of the Government: the Minister, Torsten Bell, has rightly talked about using surpluses in a productive manner.

The FSCS backs annuities. It has no government guarantee. I hope that, on Report, we may come back to the spurious safety of the current recommended future for this enormous amount of assets and find ways in which the Bill might be able to accommodate the need for a mindset change in this connection. For the moment, I beg leave to withdraw the amendment.

--- Later in debate ---

[Baroness Stedman-Scott (Con)]

My Lords, we are broadly supportive of the purpose behind this amendment. It raises an important set of questions about whether members of defined benefit schemes have been given clear, timely and accessible information about state deduction or clawback provisions, and whether the rationale for those provisions has been properly explained to them over time.

Of course, individuals must take responsibility for managing their own finances and retirement planning. But that responsibility can only be exercised meaningfully if people are properly informed in advance about what will happen to their pension, when it will happen and why. When changes or reductions are triggered at state pension age, members need adequate notice so that they can make sensible and informed financial decisions. In that context, a review of the adequacy of member communications, the transparency of the original rationale and the accessibility of this information is welcome. While we may not necessarily agree with some of the more precise parameters and timetables set out in the amendment, as a way of posing the question and prompting scrutiny, it is a reasonable approach.

That said, we have spoken to someone who has intimate, working knowledge of the Midland Bank pension scheme and has experience of the workings of the scheme. They confirmed to us that they were fully aware of this provision, because it was in all the literature they were sent when they were enrolled. Given this, can the noble Lord give some more insight into why he thinks some members of this scheme were aware, and others not, and how could this be addressed?

I would be interested to hear from the Minister whether she has any initial views on the issues this amendment raises. In particular, how accessible is this information to members in practice today, and what steps, if any, would the Government or Department for Work and Pensions take if it became clear that these arrangements are not well understood?

[Baroness Sherlock (Lab)]

My Lords, I am grateful to the noble Lord, Lord Palmer, for introducing his amendment and drawing attention to this issue, which is of real importance to some members in integrated schemes. After a lifetime of work, people rightly expect their pension to provide security and stability in retirement. For many, their occupational pension forms a key part of that.

Integrated schemes can feel confusing or unexpected to those affected, particularly when their occupational pension changes at the point when their state pension is paid. These schemes are designed so that the occupational pension is higher before state pension age and then adjusted downwards once the state pension is paid, because the schemes take account of some or all of a state pension when calculating the pension due. However, if it is not clearly explained, the change could come as a surprise. I acknowledge that and the worries some members have expressed. It is important to be clear that members are not losing money at state pension age. The structure of these schemes aims to provide a smoother level of income across retirement by blending occupational and state pension over time.

Concerns have been raised that deductions applied within integrated schemes may represent a higher proportion of income for lower-paid members, many of whom are women. This reflects wider patterns of lower earnings during their working lives, rather than any discriminatory mechanism within the schemes themselves, but I appreciate why this feels unfair to those affected. The rules governing these deductions are set out in scheme rules. Employers and trustees can decide on their scheme’s benefit structure within the legislative framework that all pension schemes must meet. The Government do not intervene in individual benefit structures but do set and enforce the minimum standards that all schemes must comply with.

Although this type of scheme is permitted under legislation, it is essential that members understand how their scheme operates. Therefore, it is extremely important that people have good, clear information about their occupational pension scheme so that they can make informed decisions about their retirement. What matters just as much as the rules is that people understand them. Good, clear information is essential so that members are not taken by surprise when they reach state pension age.

If a member believes that the information they received was unclear or incomplete, they are not without redress. They can make a complaint through their scheme’s internal dispute process or, if needed, escalate their case to the Pensions Ombudsman for an independent determination.

The Government absolutely share the desire for people to have confidence in the pensions they rely on, but, given the protections already in place and the long-established nature of schemes, we do not believe that a review is necessary. For those reasons, I ask the noble Lord to withdraw his amendment.

[Lord Palmer of Childs Hill (LD)]

I thank the noble Baroness and withdraw the amendment.

--- Later in debate ---

[Baroness Stedman-Scott (Con)]

My Lords, I am grateful to the noble Lord, Lord Sikka, for tabling this amendment, which is clearly motivated by a desire to protect scheme members and guard against the risk that pension surpluses are extracted prematurely, only for employers to fail some years later. I suspect that there is broad sympathy with this objective across the Committee. However, I have a number of questions about how this proposal would operate in practice and whether it strikes the right balance between member protection, regulatory oversight and the wider framework of insolvency law. My noble friend Lady Noakes, the noble Lord, Lord Palmer of Childs Hill, and the noble Baroness, Lady Altmann, have all raised points connected to this amendment. I hope I am not duplicating their questions, but I will ask mine.

First, can the noble Lord say more about how this amendment would interact with the existing hierarchy of creditors under the Insolvency Act 1986? As drafted, it appears to require pension schemes to be paid ahead of all other creditors, including secured creditors and those with statutory preferential status? Does the noble Lord envisage this as a complete reordering of creditor priorities in these cases? If so, what thought has he given to the potential consequences for lending decisions, access to capital or the cost of borrowing for employers that sponsor defined benefit schemes?

Secondly, I would be grateful for further clarity on the choice of a 10-year clawback period, which other noble Lords have raised. As has been said, 10 years is a very long time in corporate and economic terms, and insolvency occurring at that point may bear little or no causal connection to a surplus payment made many years earlier, perhaps in very different market conditions. What is the rationale for that specific timeframe, and how does the noble Lord respond to concerns that this could introduce long-tail uncertainty for employers and their directors when making decisions in good faith?

Thirdly, how does the amendment sit alongside the existing powers of the Pensions Regulator? At present, trustees must be satisfied that member benefits are secure before any surplus is paid, and the regulator already has moral hazard powers to intervene where it believes scheme funding or employer behaviour to be inappropriate. Does the noble Lord consider those tools insufficient and, if so, can he point to evidence of systemic failure that would justify addressing this issue through restructuring insolvency priorities rather than through pension regulations?

I am also interested in the practical operation of this provision. Proposed new subsection (2) would allow amendments to both the Insolvency Act 1986 and the Enterprise Act 2002 to achieve the intended outcome. That is a very broad power, even acknowledging the use of the affirmative procedure. Has any thought been given to how this would operate in complex insolvencies; for example, where surplus has been paid to a parent company, where assets are held across a corporate group or where insolvency proceedings involve cross-border elements?

Finally, although I understand the protective instinct behind this amendment, I wonder whether there is a risk of unintended consequences. Might the creation of a potential super-priority for pension schemes discourage legitimate surplus extraction, even where schemes are demonstrably well funded, trustees are content and regulatory requirements have been met? If that were to occur, could it inadvertently weaken employer covenant strength over time rather than strengthen it?

None of these questions is intended to diminish the importance of member protection or suggest that concerns about surplus extraction are misplaced. Rather, they are offered in the spirit of probing whether this amendment is the most proportionate and effective way of addressing those concerns, or whether there may be alternative approaches, perhaps within the existing regulatory framework, that could achieve similar objectives with fewer systemic risks. I look forward to hearing the noble Lord’s response and the Minister’s comments.

[Baroness Sherlock (Lab)]

My Lords, I thank my noble friend Lord Sikka for introducing Amendment 45A. For clarity, I will speak to the amendment as if intended to address the power to pay surplus under Section 37, as Section 36B contains the modification power.

I fully recognise the concern that members’ benefits must remain protected when surplus is paid and that trustees take a long-term view of scheme funding and employer covenant. This is why there are strong safeguards, which I have described, as set out in Clause 10. Before the release of any surplus, trustees will need to make sure that the scheme is prudently funded and seek advice and sign-off from the scheme actuary, and other advisors, about the viability of any release and the impact that may have on the long-term health of the scheme.

While trustees perform an essential role in safeguarding members’ benefits, prioritising them above all other creditors in these circumstances risks distorting the already established insolvency regime. It creates uncertainty for businesses, ultimately harming the very members we all seek to protect.

On the points made by the noble Baroness, Lady Noakes, it is our concern that placing trustees ahead of other unsecured creditors could create significant uncertainty, increased borrowing costs and restricted access in future to finance, especially for smaller businesses. In the long term, this could potentially weaken employer support for pension schemes and threaten their sustainability, rather than strengthen it.

It is important to recognise that the current system already provides significant security for pension scheme members. Pension funds in UK occupational schemes are held in trust and are legally ring-fenced from the employer, so they cannot be accessed by creditors in an insolvency. The PPF exists precisely to offer a safety net to members who would otherwise risk losing their pensions when their employer fails.

Following the Chancellor’s announcement at the Budget, this Bill will also introduce annual increases on compensation payments from the PPF and FAS on pensions built up before 6 April 1997.

The insolvency regime is designed to operate alongside the compensation system. The structure of the pension protection levy already reflects the risk of employer failure and spreads that risk fairly across eligible schemes. The PPF assumes the creditor rights of the pension scheme trustees in the event of insolvency of the sponsoring employer and seeks to maximise recoveries from the insolvent employer’s estate.

Pension schemes, backed by a strengthened PPF, are already in a stronger position than many unsecured creditors. Giving trustees priority would leave small suppliers, contractors and even some employees with significantly reduced recoveries, despite having far fewer protections. We should not create a system where small businesses and individual workers bear disproportionate losses because a pension scheme deficit overrides all other obligations. There is also the risk of moral hazard, where trustees could be less prudent when deciding to release surplus, knowing that, under employer insolvency, they would have guaranteed priority above other priorities.

The amendment could affect the employer’s business plans as creditors may be less likely to lend money to the employer. Equally, banks may place conditions on borrowing to prevent surplus release if trustees were given priority. That dynamic could push companies towards insolvency earlier, not later, having a knock-on effect on members.

The only other thing I will add is that there are other tools open to trustees that are concerned about the strength of the employer covenant and the security of benefits. It is open to trustees during funding discussions or other negotiations to seek a fixed or floating charge over the employer’s assets, which would, in effect, elevate the scheme’s position in the insolvency priority order, providing additional protection should the employer become insolvent.

I want to be clear that trustees will have the final decision on whether to release the surplus. Before they can do so, the Bill stipulates statutory safeguards before a surplus can be released. I thank the noble Lord for his concern but for the reasons I have outlined, I ask that he withdraw his amendment.

[Lord Sikka (Lab)]

I thank all noble Lords for their observations, comments, suggestions and many questions. I will briefly address some. Does this risk distorting insolvency law? It is already distorted. Pension scheme members are unsecured creditors. People who cannot hold a diversified portfolio lose their job, lose some of their pension rights and have no opportunity to rebuild their pension part. It is already distorted and already against them. I am trying to offer something right to, generally, the weakest of the creditors. Sure, banks that are secured creditors may get a little less if you pay pension scheme creditors first, but banks hold diversified portfolios. They are in a better position to manage the risks compared to employees. Creditors are less likely to lend money to companies.

Do we have any evidence to show that, if you change the order and empower some creditors, somebody takes secure charge number one, somebody takes number two and somebody takes number three—the whole hierarchy? That does not seem to persuade creditors to lend less just because there is a new hierarchy; it does not seem to support that. Changing it to five years is a possibility. A pension scheme creditor comes into existence as and when an employer goes into bankruptcy. Therefore, the pension scheme is basically a creditor.

Pension Schemes Bill

Baroness Sherlock Excerpts

Committee stage
Monday 12th January 2026 Grand Committee

[Lord Palmer of Childs Hill (LD)]

My Lords, I thank everyone for their contributions. I do not intend to go on at length.

It is a novel view, is it not, that a Bill should have a purpose? This ought to be applied to many other Bills to show what their purposes are. This Bill has a wide range of powers affecting consolidation, investment, surplus extraction, defaults and retirement outcomes, but nowhere is a clear statement of purpose listed. I do not think that is symbolic; it is very useful. I have a simple question for the Minister: what is lost by clarity? We are looking here for a piece of clarity that does not undermine the Bill in any way but sets out what people are meant to see and expect from the Bill. It would set a pathway for other Bills to set out their purposes. From these Benches, I support this amendment.

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

My Lords, I am grateful to the noble Viscount, Lord Younger, for introducing his amendment, and all noble Lords who have spoken. It is a particular delight to hear from so many colleagues so early in Committee.

I should begin by saying two things. First, I am a member of the parliamentary pension scheme, so I thank the noble Viscount, Lord Thurso, for his service and urge him to give the scheme even greater attentiveness in future; I would be very grateful for that. Secondly, I am about to disappoint most Members of the Committee, but I may as well start as I mean to go on. Many of the points made and questions asked will come up in subsequent Committee days—that is what Committee is for—so I hope that noble Lords will forgive me if I do not go into the detail of how surplus operates, how value for money operates or how asset allocation will work; I will come back to all of those. I should probably apologise to the noble Lord, Lord Fuller, because I cannot promise to go back to Star Wars figurines, but I will try to pick up most of the rest of the points at some stage.

The Bill delivers vital reforms to strengthen the UK pensions system, safeguarding the financial future of around 20 million savers while driving long-term economic growth. The Bill focuses on improving value and efficiency for workers’ pension savings, with an average earner potentially gaining up to £29,000 more by retirement. These measures will accelerate the shift towards a pensions landscape with fewer, larger and better-governed schemes that deliver for both members and the wider economy.

To support market consolidation, the Bill introduces superfunds, megafunds and Local Government Pension Scheme pools, creating scale and resilience. The value-for-money framework will ensure that schemes provide the best outcomes for savers, while guided retirement provisions will help members when accessing their savings. Other measures in the Bill will enable pension schemes to operate more effectively by streamlining governance, improving transparency and reducing unnecessary complexity. The reforms delivered through the Bill will create a more efficient, resilient pension landscape; they will also lay the foundation for the Pensions Commission to examine outcomes for pensioners and set out how to develop a fair and sustainable system, ultimately benefiting both individual savers and the UK economy.

To achieve these ambitions, the Bill makes a number of essential changes to the framework of law relating to private pension schemes and the LGPS, rather than pursuing a single overarching objective. To insert a purpose clause could cause legal uncertainty as a court could assume that a provision included in a Bill was intended to have some additional operative effect. The practical effect of the requirement to have regard to the purpose of the Bill, as expressed in this proposed new clause, is unclear.

The purposes of individual provisions are instead made clear through their drafting and the accompanying explanatory material, including the Explanatory Notes and the impact assessment. There is no need for an additional new clause at the start of the Bill setting out the purposes, as this is covered elsewhere more appropriately. This approach is in keeping with established practice; for example, the Financial Services and Markets Act 2023 was twice the size of the Pension Schemes Bill. Like the Bill, it deals with a complex legal landscape and made a number of separate and necessary changes to the law relating to financial services and markets. There is no purpose provision in that Act, just as no overarching purpose clause has been included in the Pension Schemes Bill. We will return to matters related to secondary legislation in the debate on a subsequent group of amendments tabled by the noble Lord, Lord Sharkey.

I will pick up the point made by the noble Viscount, Lord Younger, about this being a framework Bill; he used that as an argument for a purpose clause. I say to the noble Lord, Lord Palmer, that, if he has not seen a purpose clause debate, he has not been in many debates in the Chamber recently, because they have appeared; unfortunately and inadvertently, they mostly resulted in long Second Reading debates at the start of many other pieces of legislation. I stress that that was neither the purpose nor the result here, but many of those debates have happened.

We do not consider this to be a framework Bill. The noble Viscount mentioned the idea of setting legislation now and setting policy later. Manifestly, that is not what is happening. The Bill clearly sets out the policy decisions and the parameters within which delegated powers must operate. It brings together a broad package of reforms in pensions into a single piece of legislation. Many of those reforms build on long-established statutory regimes, where Parliament has historically set the policy in primary legislation and provided for detailed measures that will apply to schemes to be set out in regulations. The policy direction is clearly set out here.

As we all know, the successful implementation of pensions depends heavily on trustees, schemes, providers and regulators, which makes engagement and operational detail essential rather than optional. There has been extensive consultation and there will be further extensive consultation. I do not think that this matter will be solved any further by adding a purpose clause.

Finally, the Long Title of the Financial Services and Markets Act 2023 was also described in neutral terms—

“to make provision about the regulation of financial services and markets”—

rather than providing a practically unworkable narrative explanation of the purpose of that legislation. The same applies here.

While I welcome the comments and look forward to returning to many of them in our debates, I hope that I have made the case not only for the Bill as a whole but as to why it is unnecessary and unhelpful to add a purpose clause. I ask the noble Viscount to withdraw his amendment.

[Viscount Younger of Leckie (Con)]

My Lords, I thank all noble Lords who have contributed to this relatively short debate. Many of the points raised strongly reinforce the view that my noble friend and I are seeking to advance: that this is indeed a framework Bill, which in its current form would benefit from greater explanation, greater articulation of purpose and more fully developed safeguards. I believe that the debate has drawn out views on some of those listed purposes and that it has been helpful at the outset of Committee.

As my noble friend Lord Trenchard said, it is complicated—that adds to my argument. I was very grateful to have the support of the noble Baroness, Lady Bowles. I am grateful to the Minister for her response and for beginning to provide some additional context around the Government’s intentions. It has been helpful up to a point, but I am not quite sure why she thinks a purpose clause would provide some uncertainty.

I remain of the view that a broader and more holistic articulation of where the Government would like the pensions system to be in five, 10 and 15 years’ time is still lacking. In fairness, that is likely to extend beyond what the Minister can reasonably be expected to provide today; I understand that. I accept her valid point that Committee is for delving into the detail of these matters, which we will be doing.

I will pick up just a few points from the debate. First, my noble friend Lord Fuller is absolutely right that we need a purpose clause to inspire people, particularly young people, to save for the future. That is a very valid point; it levels us, or brings us down to base, in terms of what we are trying to do here with this complicated Bill.

--- Later in debate ---

[Viscount Younger of Leckie (Con)]

My Lords, this group of amendments focuses on scrutiny, clarity and responsibility, and I am grateful to the noble Lord, Lord Sharkey, for setting out the merits of the super-affirmative procedures and their historical context. It was interesting to hear what he had to say.

As the Committee will have seen, the provisions to which these super-affirmative procedures would pertain allow Ministers, through secondary legislation, to impose requirements and prohibitions on scheme managers, to direct participation in asset pool companies, to require withdrawal from them and to impose obligations on those companies themselves. These are significant powers, exercised in an area that is highly technical, operationally sensitive and financially consequential.

This is precisely the sort of context in which unintended consequences can arise, as alluded to by the noble Lord, Lord Sharkey. These clauses are dense, complex and interconnected. They interact with fiduciary duties, local accountability, financial regulation and long-term investment strategy. Small changes in drafting or approach could have material effects on risk, returns, governance or market behaviour.

That is why I am glad that the amendment places particular emphasis on representations. The ability for Parliament, and expert stakeholders, to examine draft regulations, to make these representations, and for those representations to be meaningfully considered before regulations are finalised, is essential to the responsible exercise of these powers.

The super-affirmative procedure would ensure that Parliament is not simply asked to approve a finished product but is given the opportunity to understand the Government’s intent, to hear from those with deep expertise in pensions, asset management and regulation, and to see how concerns raised have been addressed. That is especially important where the primary legislation quite deliberately leaves so much to be filled in by regulation, as I explained earlier in Committee.

I hope the Minister will engage constructively with this point and explain why the Government believe the ordinary affirmative procedure provides sufficient scrutiny in this case, given the scale, complexity and potential impact of the powers being taken. I appreciate the short debate on this matter.

[Baroness Sherlock (Lab)]

My Lords, I am grateful to the noble Lord, Lord Sharkey, for introducing his amendments, and to all noble Lords who have spoken. This gives us an opportunity to talk about how best to balance the way we structure matters between primary and secondary legislation. However, the proposals from the noble Lord, Lord Sharkey, would significantly expand the way Parliament scrutinises regulations made under the Bill. I understand why he would want to do that, but his proposals would introduce a level of rigidity into the process that is not only unusual in this area but obviously would be markedly more elaborate than the Bill currently provides for.

The super-affirmative procedure is generally reserved for exceptional circumstances, such as legislative reform orders or remedial orders under the Human Rights Act. I am not aware of any examples of it being applied to pensions regulations, but I am very open to being advised on that. In our view, it would be disproportionate to the nature of the powers conferred by the Bill, and I will explain why.

I will look first at Clause 1. The coalition Government introduced the Public Service Pensions Act 2013. Through that, Parliament established the way it would go about governing the making of scheme regulations. It was a comprehensive and well-tested scrutiny framework. It still operates today, including where new powers were created, for example, by the Public Service Pensions and Judicial Offices Act 2022. The framework created by that Act provides extensive safeguards, including mandatory consultation, enhanced consultation if changes have or might have retrospective effect, and Treasury consent. Introducing a substantially more onerous procedure for regulations under Clause 1, as proposed by Amendment 3, would sit uneasily alongside that established approach.

There are also practical considerations. Administering authorities and asset pool companies are preparing for regulations to be introduced shortly after the Bill has passed its parliamentary scrutiny. The Government have already published draft regulations on the LGPS measure. They were open to public consultation, which has recently closed. Adding a 30-day pre-scrutiny stage through the super-affirmative procedure would clearly extend that timetable and risk creating more uncertainty at a critical moment for those involved in implementing this.

Amendment 221 would allow either House to require that any affirmative regulations made under this Bill be subject to the super-affirmative process. That would already represent a significant expansion of parliamentary involvement compared with the long-standing approach to pensions.

Amendment 222 would go further still. It does not simply describe how the super-affirmative procedure would operate in this context; it would create a new statutory scrutiny process, more prescriptive and more inflexible than the mechanisms Parliament has used to date for pension regulations—or indeed most regulations. It would require a fixed 30-day scrutiny period in any case where either House decided to impose the new procedure. It would mandate a committee report, even for minor or technical regulations, and would prevent regulations being laid until Ministers had responded formally to all representations. The result would be a significant departure from the flexible way Parliament normally manages delegated legislation.

I hear the concerns the noble Lord has expressed about the way Parliament deals with secondary legislation, but scrutiny procedures are normally determined by the House through its practices and Standing Orders. Replacing those arrangements with a rigid statutory framework of this kind for this Bill would set a far-reaching precedent for delegated legislation more broadly, extending well beyond the requirements of this Bill.

I would submit that such a process would also make it harder for Parliament to focus scrutiny on the most significant instruments and would slow down the making of regulations in areas where timely and predictable implementation is crucial for funds, administering authorities and scheme members.

A certain amount of this comes down to whether the Committee accepts that the level of delegated powers is appropriate. I fully understand that the noble Lord does not. I disagree and I will tell him why. In answer to the noble Viscount, Lord Younger of Leckie, in the previous group I said that the Government do not regard this as a framework or skeleton Bill, because it sets out clearly the policy decisions and parameters within which the delegated powers must operate. The Bill brings together a broad package of reforms. Many of those reforms build on long-established statutory regimes set out by previous Governments—Governments of all persuasions, as well as previous Labour Governments—in which Parliament has historically set the policy in primary legislation and provided for the detailed measures that will apply to schemes to be set out in regulations.

The noble Baroness, Lady Neville-Rolfe, asked for a full list of delegated powers. My department produced a very detailed delegated powers memorandum, which went through all the delegated powers at some length and in some detail, explaining what they meant. I would be very happy to direct the noble Baroness to that if that would be helpful.

One of the key questions the noble Lord, Lord Sharkey, asked was: why are there so many delegated powers? Our view is that this is not out of kilter with other similar transformative pension Bills. We counted 119 delegated powers covering 11 major topics plus some smaller topics. For example, in the Pension Schemes Act 2021, there were almost 100 delegated powers covering three major topics. In the Pensions Act 1995, which was a transformative Bill, there were approximately 150 delegated powers.

This Bill brings together a number of distinct pensions measures in a single legislative vehicle, many of which amend or build on existing regimes that are already heavily reliant on secondary legislation for their detailed operation. In many areas, we are simply reflecting a similar framework to previous pensions legislation or amending it, so there is continuity rather than a step change.

A crucial point I want to lodge is that pensions policy is not delivered directly by government. Implementation depends on trustees, pension schemes, pension providers, administrators and regulators who have to design systems, processes and administration that work in practice. That level of detailed operational design can begin only once there is sufficient certainty that legislation will proceed. As noble Lords who have worked in or with industry will recognise, before there is sufficient certainty, industry cannot reasonably commit the significant time and resources needed to work through complex delivery arrangements where the legal basis may still change or not materialise. Delegated powers therefore allow the Government to set the policy framework in primary legislation and then work with those responsible for delivery to ensure that the technical detail is workable in practice, rather than attempting to prescribe detailed operational rules in primary legislation. That reflects established pensions practice and good lawmaking in a complex and fast-moving regulatory environment.

[Lord Fuller (Con)]

I am conscious that this is not the Minister’s area of specialism, because we are talking about the Local Government Pension Scheme, which is under MHCLG, not the DWP, so I do not expect her to be fully up to speed with this part of the Bill. Members of the various pensions committees of the administrating committees—by and large within county councils, but there are some joint arrangements as well—are legally not trustees. I accept that what the Minister said is correct for the generality of private schemes and some other schemes, but I do not believe it is for the LGPS. I do not expect her to respond immediately, but it is important. It is a shame that we do not have an MHCLG Minister here, because this scheme is the closest we have to a national wealth fund and we are transacting this business without the appropriate expertise here. However, clarity on that is important.

[Baroness Sherlock (Lab)]

I was going to say that I am grateful to the noble Lord, but I am not sure that I am, really. I am sure he has not missed the fact that the amendments put forward by the noble Lord, Lord Sharkey, do not apply simply to the LGPS provisions in the Bill. They would have widespread application throughout the Bill and implications beyond it. I say that they would have all these implications and I am talking about trustees because they would have a significant impact on the way that all those actors in the pension space would be able to engage in future.

In the past, I have heard people around the House criticise Governments for making decisions at the centre without engaging with those in industry and business who have to deliver them. I know that, if the Government had given huge amounts of certainty and left nothing out there, the criticism would simply be the reverse of what we have heard today. We have to find a balance. The Government believe we have found the right balance. Some Members of the Committee will disagree. I have looked carefully into this, and I am defending the balance that the Government have come to, but I accept that if noble Lords disagree, we will have to come back to this in due course.

We think the existing framework already 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 orderly way. In the light of my comments, particularly about the proportionality of this, its comparability with previous pensions legislation and the degree to which it is in continuity with the way pensions legislation has traditionally been made by successive Governments, I hope the noble Lord will feel able to withdraw his amendment.

[Lord Sharkey (LD)]

I am grateful to all those who have contributed to this brief debate. The complexity described by the Minister is obviously real and clearly important, but one of the ways of dealing with complexity is to have the instruments to simplify it and discuss it. My response to the scenario painted by the Minister would be to say: let us have super-affirmative procedures and accept that they will take up a bit more time and involve a bit more work, but, as I pointed out, that is their entire point.

Skeleton Bills always limit parliamentary scrutiny, and the Pension Schemes Bill is not an exception to that; in some ways, it is a confirmation of it. I understood the Minister’s case, but the Government’s desire to limit parliamentary scrutiny is a mistake. The SIs generated by this Bill will have real consequences for the real economy. We cannot usefully discuss these consequences until we have the detail. It seems to me as simple as that. Of course, having the detail helps only if we can do something about it, and the super-affirmative procedure provides that opportunity.

--- Later in debate ---

[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.

[Baroness Sherlock (Lab)]

I am advised that Amendment 220 had been withdrawn, not just not debated. We will look into that, and the noble Lord will need to clarify it.

Graduate Jobs

Baroness Sherlock Excerpts

Tuesday 6th January 2026 Lords Chamber

[Lord McNicol of West Kilbride]

To ask His Majesty’s Government what assessment they have made of the decline in graduate jobs and the extent to which it is a long-term trend that requires intervention.

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

My Lords, while the employment rate remains higher for graduates than for non-graduates, we recognise that there are challenges faced by young people leaving university. We are delivering for graduates by investing £1 billion in sector skills packages to create hundreds of thousands of jobs, by launching the jobs and careers service so that everyone can access quality careers advice and by delivering the youth guarantee so that 16 to 24 year-olds, including graduates, have the best support to enter work.

[Lord McNicol of West Kilbride (Lab)]

My Lords, I thank my noble friend the Minister for her Answer and agree with many of the points she has made. For a number of decades now, Governments of all shades have encouraged school leavers to go to university. I did not. I attended one of the old technical colleges, Dundee Institute of Technology, where I got an HND in building management. With the structural changes in employment opportunities for young people that we are now seeing, can we not do more to ensure that careers advice and the likes of technical education are better tailored for the generations of the future and the skills they will need in the new world of work?

--- Later in debate ---

[Baroness Sherlock (Lab)]

My Lords, my noble friend is a tribute to Dundee Institute, and indeed HNDs and the country, so we all have cause to be grateful for its investment in him. My noble friend is right that there are clearly challenges in the graduate market, but I want to say up front on AI that we do not yet see the evidence that this necessarily means a long-term decline in graduate jobs. AI is having a range of impacts; its impact is contested and it is different and it is changing as we go. However, his point is incredibly important, and the Government need to act to ensure that graduates and young people generally have access not just to entry-level jobs but to proper high-quality careers. That means investing in sectors which are producing growth, making sure we have the right skills, and that career services, both within education and in the new jobs and career service, are supporting people to make sure they develop the skills needed to go into the sectors where there are increasing numbers of jobs and those jobs are better paid. I am very optimistic. AI offers opportunities as well for young people. Young people are much more technologically savvy—than me anyway, I hope—and much more optimistic about the impact of AI, so there are real opportunities as well as challenges.

[Lord Baker of Dorking (Con)]

My Lords, instead of finding jobs for graduates, we should be trying to persuade more 18 year-olds not to go to university. In the colleges that I support, 25% of our leavers become apprentices compared to 4% from an ordinary school. Apprentices can earn as much as £30,000 a year at the age of 18. May I persuade the Minister that what she really ought to be doing is to persuade more schools to produce apprentices?

[Baroness Sherlock (Lab)]

First, I pay tribute to the work that the noble Lord has done in this important area of technical education, working with employers and looking at how we teach our young people. I am grateful to him, and I am sure the whole House is, for his track record in that area. Secondly, he does not need to persuade us, which is the good news. The Prime Minister has recently made a new ambition for two-thirds of young people not just to go to university but to go to university or to take up one of these gold-standard apprenticeships. That includes targeting at least 10% of young people to go into level 4 or level 5 study. We know that getting people into the right areas with the right skills means they are much more likely to get jobs. Most graduates get jobs, but so do people who come through good apprenticeships and significant numbers end up staying on with the employers who hired them—the noble Lord knows all of this, but I am telling the House. Our job as government is to recognise that there are challenges coming down the track. We need to be the country which sees the opportunities, skills up our young people to take them up, encourages and supports employers to train them correctly, works with those who are doing the teaching and gets growth in the areas that drive jobs. We are going after all of those.

[Lord Londesborough (CB)]

My Lords, the brutal truth is that the number of graduates in the UK has almost doubled over the last 20 years, far outstripping the supply of graduate jobs, and that was before the decline in the last five years. This gross mismatch in supply and demand has resulted in a mountain of student debt—£270 billion at the last count—much of which will never be repaid. Does the Minister accept that this is a raw deal not just for students but also for taxpayers, and that our universities need fundamental reform, particularly in the area of funding, to face up to economic reality?

[Baroness Sherlock (Lab)]

My Lords, one thing I want to say to any students or graduates out there is that the evidence shows that graduates are more likely to be in work, to be in higher-skilled work and to earn more. Graduates continue to experience higher lifetime earnings, and they are nearly three times as likely to be in high-skilled employment than non-graduates. Having said that, the most important thing is that young people get appropriate advice to choose the forms of study that suit them. This is not a message to say that people should leave school and go straight into work. We are increasingly going into an era when employers will need skills, especially in a world where AI could automate some activities but it could also augment others. We need people to have the skills, so I am with him about the need to get the right people going into the right kind of education and training. On the question of HE funding, the HE sector clearly needs a secure financial footing to face into the challenges coming down the track. We have therefore acted to increase tuition-fee caps for all HE providers in line with forecast inflation, but future fee uplifts will be conditional on those providers achieving a higher-quality threshold through the Office for Students.

[The Lord Bishop of Chester]

My Lords, I am grateful for the replies that the Minister has already given and for the work the Government are doing in this area. To pick up on the question of apprenticeships, what are the Government doing to promote graduate internships? In an economy like that of the north-west, which depends on small and medium-sized enterprises, those are a vital way into work. Specifically around healthcare, the noble Baroness will be aware of the Jisc report from November 2025, which says that six out of 10 first- degree employment is in the area of health, social care or education, so how can the limited hiring, particularly of nurses, be addressed?

[Baroness Sherlock (Lab)]

My Lords, on the question of internships and apprenticeships for those who are going into specialist areas, the DWP has been working to find internships or work experience opportunities for young people. We all know from the number of requests we get from them that it is an awful lot easier to get internships if you have money and connections. One of the challenges for us is to make sure we create opportunities for work experience and internships for those who do not have those things. We are doing a huge amount of work specifically with the one in eight young people who are not in employment, education or training, of whom some will be in the north-west—they are around the country, but they are more likely to be in areas of deprivation. So, we are looking at how we can support that. At the other level, for example for young people who have been on universal credit for 18 months looking for work and not getting it, at the end of that we will give them a guaranteed job for six months to make sure that they have that experience of work.

On the question of professional apprenticeships, the Government are prioritising young people but that includes apprenticeships up to level 7 for those who are under 22 when they begin. The right reverend Prelate mentioned nursing; sometimes they will be post-degree, but they will often be level 6, and there are young people who qualify as solicitors or accountants, for example, through the apprenticeship route. Again, we are interested in where we can grow jobs. I read an interesting World Economic Forum report about the areas that are growing, and one of the growth areas is nursing.

[Baroness Garden of Frognal (LD)]

My Lords, can the Minster assure us that university undergraduates are not only learning academic skills but skills that will be useful for work? Many years ago, when I graduated from Oxford and told them that I was marrying an RAF officer, I was told that I was unemployable, which was actually pretty accurate. Can the Minister say whether university career guidance is more positive these days than the guidance that I was given?

[Baroness Sherlock (Lab)]

For someone who was unemployable at the age of 21, the noble Baroness has not done too badly for herself, and I am sure that the RAF has also benefited from the work that she has done over the years. This is incredibly important. University career support has come a long way, as anyone who has had children or known others who have engaged with it will know. There is more and more engagement with local employers, and we on the DWP side are doing huge amounts with employers. Our aim is to try to make sure that, as we develop the skills requirement, we are working in areas of labour demand, and that we work with those who provide both FE and HE apprenticeships to make sure that the right skills are there, that people are going into the areas where there is growth and that they will get jobs. That is quite broad. A good degree takes somebody into lots of areas. Employers want a good range of skills, including creative thinking, analytical thinking and resilience, and those can come from any discipline.

[Baroness O'Loan (CB)]

My Lords, there is a national shortage of electricians, plumbers, plasterers and people of that nature, yet there does not seem to be any focus on the development of apprenticeships for those young people for whom a university education quite simply is not appropriate. Can the Minister comment on this?

[Baroness Sherlock (Lab)]

The priority has been on sectors, some of which will include a range of those skills. For example, the £1 billion that we are putting into sector skills will cover AI but also engineering, green energy and all kinds of areas that use a wide range of those skills. If the employers need them, we will support people to train to get those jobs.

Pension Schemes Bill

Baroness Sherlock Excerpts

2nd reading
Thursday 18th December 2025 Lords Chamber

Moved by

[Baroness Sherlock]

Northern Ireland and Welsh legislative consent sought. Relevant document: 42nd Report from the Delegated Powers and Regulatory Reform Committee

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

My Lords, it is a privilege to open the Second Reading of the Pension Schemes Bill. I am grateful to noble Lords for the engagement we have already had, and I look forward to working constructively together as the Bill progresses through this House. I also very much look forward to the maiden speech of the noble Baroness, Lady White of Tufnell Park.

Pensions are really important, and the Bill will transform our pensions landscape for the better. It will play its part in delivering growth, as well as helping to raise living standards in every part of the UK. It will assist the pensioners of the future to feel more confident about the economy in general, as well as their own futures.

Pensions are the promise we make to millions of people that their years of hard work will be rewarded with security and dignity in retirement. UK pension schemes invest hundreds of billions of pounds in our country. The reforms outlined in the Bill will make those pounds work harder for pensioners by making schemes more efficient—more money invested, and less on overheads and administration.

The first Pensions Commission laid the groundwork for a new pensions landscape, with a simpler state pension and automatic enrolment into retirement savings. This transformed private pension saving in the UK. The Bill, along with the work of the pensions investment review, moves our private pensions system forward. Bigger, better pension schemes will drive better returns, as well as tackling inefficiencies in our system.

The new Pensions Commission is looking at the issue of adequacy across the state and private pensions systems, with a clear objective of building a strong, fair and sustainable pension system. I look forward to this debate on the Bill, which is all about making every pound saved work harder for members, unlocking investment for our economy and restoring confidence in the promise of a decent retirement.

I will now outline the main measures in the Bill. First, the Bill addresses the fragmentation of the Local Government Pension Scheme, which is currently spread across 87 funds in England and Wales. This fragmentation limits efficiency and scale. Through these reforms, all assets in the Local Government Pension Scheme, or LGPS, will be managed through FCA-regulated investment pools, ensuring professional oversight and better value for money. Administering authorities will set clear targets for local investment, working with strategic authorities to align with regional growth plans.

Of course, LGPS members’ pensions and benefits are protected, as they are guaranteed in statute and are not affected by the performance of investments. These reforms are about the LGPS being well governed and well invested to deliver efficiency and value for money.

Next, 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. This will enable employers to drive growth through investment and higher purchasing power, but it will be subject to strict safeguards. The measure will allow trustees, working with employers, to decide how surplus can benefit both members and employers, while maintaining security for future pensions.

The defined contribution, or DC, workplace pensions market prioritises competition on cost rather than on the overall value. The Bill introduces a value-for-money framework to enable a shift in focus away from cost towards a longer-term consideration of value. This new framework looks to standardise how value is assessed, in a transparent, consistent and comparable way. It will require schemes to disclose standardised metrics, undertake a holistic assessment of value, and take improvement actions where needed.

Automatic enrolment has been a huge success, ensuring that millions more people are now saving for their retirement. However, frequent job changes mean that individuals are often enrolled into a new pension scheme by each employer, leaving them with multiple small pots over their working life, often with very small amounts saved. This has created a challenge across the workplace pensions market, with current estimates suggesting that within the system there are more than 13 million pots worth less than £1,000 each. This is hugely expensive for pension schemes to administer, with an estimated cost of £240 million a year, ultimately resulting in poorer value for members.

Through the Bill, we are taking powers to introduce automatic consolidation of these dormant small pension pots through a multiple default consolidator model. Opportunity for member choice will be built in; members can choose a consolidator scheme or choose to opt out entirely if they wish. This will simplify the system, reduce costs and support members so they can better track their retirement savings.

There is strong evidence that larger pension schemes mean better outcomes for members through efficiencies of scale, stronger governance and better investment opportunities at lower cost. The Bill will therefore drive scale by accelerating the consolidation of multi-employer DC schemes.

From 2030, schemes used for auto-enrolment must reach at least £25 billion in assets in a single main scale default arrangement, or £10 billion on a transition pathway with a credible plan to reach £25 billion within five years. This is about harnessing the power of scale: larger schemes can negotiate better deals, access more diverse investments and deliver better outcomes for savers.

On asset allocation, earlier this year, the Mansion House Accord was signed by 17 major pension providers, which, between them, manage about 90% of active savers’ DC pensions. This initiative was led by industry, and the signatories pledged to invest 10% of their main default funds in private assets, such as infrastructure, by 2030. The purpose of this voluntary commitment is, as the signatories put it,

“to facilitate access for savers to the higher potential net returns that can arise from investment in private markets as part of a diversified portfolio, as well as boosting investment in the UK”.

The Bill includes a backstop provision that would permit the Government, with Parliament’s approval, to require DC pension providers of auto-enrolment schemes to invest a fixed percentage of their default funds in specific asset classes. The Government do not anticipate exercising the power, unless they consider that the industry has not delivered the change on its own. There are also strong safeguards around it.

All workplace pension schemes are required to have a default arrangement, where contributions are invested if members do not choose an investment option. Most members go into a default arrangement and remain there throughout their scheme membership. There are currently thousands of different default arrangements in pension schemes, creating fragmentation, inefficiency and poorer outcomes for members.

The Bill introduces new requirements to review those default arrangements, with a power to make regulations as needed, following the review, to require default arrangements to be consolidated into a main scale default arrangement. There is also a power to make regulations for new default arrangements to be subject to regulatory approval. That will ensure that savers benefit from economies of scale and improved governance by reducing the fragmentation in the pensions market.

Many pension schemes, especially legacy ones, are not delivering good outcomes for savers. As contract-based schemes rely on individual contracts between firms and members, firms usually need individual members’ consent to make any changes, even when the change would improve outcomes for members. Obtaining this consent is often difficult and costly, especially when members are disengaged, even when a scheme offers poor value. This leaves members stuck in poor-value schemes.

To address that, the Government are introducing the contractual override power in the Bill. It will allow the providers of FCA-regulated DC workplace pensions to transfer members to a different pension arrangement, make a change which would otherwise require consent, or vary the terms of members’ contracts without the need for individual member consent, but only when the legal and regulatory requirements are met. That includes rigorous consumer safeguards such as the best interests test, which must be met and certified by an independent expert before a contractual override can take place.

At retirement, DC scheme savers face complex financial decisions. They need to evaluate the different options to suit their own individual circumstances, assess risks and uncertainty in financial products, and factor in their own estimation of their life expectancy. We know that savers do not always use the support available: only 16% used a regulated source, such as Pension Wise or a professional financial adviser.

The Bill puts new duties on trustees to develop and provide one or more default pension plans at retirement to help members access their savings without these complex decisions. These plans will provide a straightforward income solution for most members, with opt-out rights for those who prefer alternatives. Trustees must design plans based on member needs, communicate options clearly and publish a pension benefits strategy, which will be overseen by the Pensions Regulator. The Bill also requires the FCA to make rules that deliver default pension plans in relation to pension schemes regulated by the FCA, ensuring consistency and better outcomes for savers.

Superfunds are commercial consolidators that offer a new route for employers to secure the legacy liabilities of closed DB schemes that cannot secure an insurance buyout. Building on the current interim regime, the Bill establishes a permanent legislative framework for superfunds. It introduces an authorisation and supervisory regime with robust governance, funding and continuity arrangements, so that members of those schemes can have the confidence that their pensions are properly protected. Superfunds may invest more productively because of their scale, expertise and buying power, so they are good for members, employers and the wider economy.

Part 4 contains a range of important measures. Following the Virgin Media court case, certain DB pension benefit alterations could be treated as void if schemes cannot produce actuarial confirmation that they met the minimum standards in place at the time. This affects schemes that were contracted out between 1997 and 2016. The court judgment has the potential to cause pension schemes significant cost and uncertainty, even where the schemes did, in fact, meet the minimum standards required. To resolve that, the Bill allows schemes to ask their actuary to confirm that past benefit alterations would not have caused the scheme to fall below the relevant minimum standards.

The Chancellor announced in the Budget that the Government will introduce pre-1997 indexation into the Pension Protection Fund and the Financial Assistance Scheme—the PPF and the FAS—to address the long-standing issue faced by members. As noble Lords will be aware, those are the compensation schemes that provide a safety net for members of DB schemes. Currently, payments in respect of service before 1997 are not uprated with inflation, and affected members have seen the real value of their compensation decrease significantly in recent years.

The Bill will pave the way to introduce increases on PPF and FAS payments for pensions built up before 6 April 1997. These will be CPI-linked and capped at 2.5%, and will apply prospectively for members whose former schemes provided for these increases. That will help those members’ pensions keep pace with the cost of living. This is a step change that will make a meaningful difference to over 250,000 members. Incomes will be boosted by an average of around £400 for PPF members and £300 for FAS members after the first five years. Our changes strike an affordable balance of interests for all parties, including eligible members, levy payers, taxpayers and the PPF’s ability to manage future risk. The Bill makes some other changes to the PPF and the FAS that will benefit the members of these schemes and the levy payers supporting the PPF, including around terminal illness and the levies.

Finally, some noble Lords may have seen that the Delegated Powers and Regulatory Reform Committee published its report on the Bill last night. I emphasise that the Government recognise the importance of getting the right balance when taking delegated powers and using them appropriately. The pensions industry is highly technical and rapidly evolving, and there is a complex interaction between legislative requirements, regulatory oversight and changes in practice or innovation. In pensions legislation, it is common for a mix of requirements and principles to be set out in primary legislation, with finer detail, which is liable to frequent development, to be set out in secondary legislation. That allows for a quicker response to developments in the industry, including to protect scheme members. We think we have the right balance in the Bill, but I thank the committee for its report and will respond in due course.

This Bill will initiate systemic changes to the pensions landscape, with the aim of building a pensions system that is fit for the future—one that is strong, fair and sustainable, and that delivers for savers, employers and the economy. At its core, the Bill is about making sure that people’s hard-earned savings work as hard for them as they have worked to save, while galvanising the untapped benefits that private pensions can offer the economy at large. I look forward to our discussions today. I beg to move.

--- Later in debate ---

[Baroness Sherlock (Lab)]

My Lords, I am grateful for the incredible range of thoughtful and constructive contributions we have heard during today’s debate. I should declare that I am a member of the parliamentary pension scheme; otherwise, I have a private pension.

I am so grateful to have heard the maiden speech of the noble Baroness, Lady White. I realise we have quite a bit in common: we are children of migrants, I too have spatial dyspraxia—I have never yet found my way around here—and we both engage with a church. I am afraid that there it ends; no one will ever ask me to chair John Lewis, which may be just as well for anybody who likes shopping there. She may have had an eclectic career but, now that she has joined this House, it will get a lot more eclectic still. It is a joy to have her on board and, if there is more of that to come, I look forward to it.

The range of views around of the House reflects the significance of the Bill for savers, employers and the pensions industry. The level of interest underscores how important pensions are to savers and the UK economy, and we need to help people get the best from their savings. There were some fascinating discussions in the debate today. I could have listened to the noble Lord, Lord Willetts, and my noble friend Lord Wood for a lot longer, and I shall not be able to do justice to what they said. But I shall go back and read it very carefully and I hope that we can continue to have some really interesting conversations.

There were a lot of questions, and I will not be able to respond to all of them. I shall do my very best, but I have only 20 minutes and it may be that noble Lords have to listen back to this at half-speed, if I am not careful.

I will start with adequacy, as that is where the noble Baroness, Lady Stedman-Scott, began. I was grateful to the noble Lord, Lord Willetts, for setting out that this has been very much a cross-party journey that we have been on together, and I hope that we can keep it that way. I am sure that the noble Baroness did not mean to presume that auto-enrolment started with the last Conservative Government, when in fact it was legislated by the previous Labour Government—and there was also the Pensions Commission. I am sure that she did not mean to say that. What we have done is provide some remarkable continuity in the journey, and I hope that we can carry on doing that.

I was delighted by the work done by the last Pensions Commission, on which my noble friend Lady Drake served with such distinction—and I know that she will serve with equal distinction on the next Pensions Commission. That is the place where adequacy will be addressed fully. The Government are committed to that—it is a key priority for us—but it is also important that we get the market into the right shape so that, if savers are saving more, they will get the returns on their money.

I turn to the issue of surplus. I listened very carefully to the noble Baroness, Lady Noakes, and my noble friend Lord Davies, and thought, “I can’t make them both happy on this front”. That is generally true, I think, but it is illustrated particularly on the subject of surplus. I shall say two things. First, to the noble Viscount, Lord Younger, I say that we are very careful about what surplus extraction will do. Schemes are currently enjoying high levels of funding, with three in four in surplus on a low-dependency basis. They are also more mature, with the vast majority having a hedge to minimise the risk of future volatility with investment strategies: they are protected against interest rate and inflation movements. The DB funding code and underpinning legislation introduced in 2024 require trustees to maintain a strong funding position.

The decisions to release surplus are of course subject to trustee discretion and underpinned by strict safeguards, including the requirement for a prudent funding threshold, actuarial certification and member notification. Of course, as part of any agreement to release surplus funds, trustees are in a good position to negotiate, and it will be down to trustees to negotiate with their employers about the way in which surplus is released.

My noble friend Lady Warwick rightly pressed me on the questions of scale. As outlined in the impact assessment for the Bill, there is a range of evidence showing that scale can help deliver better governance, with economies of scale, investment expertise and access to a wider range of assets all helping to improve outcomes. We may not be heading for the sunlit uplands of Aussie megafunds, described by the noble Baroness, Lady White, but we are pushing in that direction. In response to her question, we will ensure that the governance and regulatory requirements needed for these much bigger pension schemes will be robust. We will develop those with the industry going forward.

On the question of whether the scale measures are going to be tougher on smaller schemes, the problem is that our evidence shows, across a range of studies, that scale is what makes the difference. We are asked why there is a magic number of about £25 billion. The evidence from a number of studies shows that a greater number of benefits can arise from a scale of £25 billion to £50 billion of assets under management, including investment expertise and sophistication and the balance sheet to provide a more diverse portfolio to savers. We have not seen sufficient evidence that other approaches will enable the same benefits for savers and the economy, so we do believe that scale is the best way to realise benefits across the market for savers. However, there will be a transition pathway to enable those schemes that are not there now to have a route to scale where they have a credible plan to achieve it in five years, and we will consult the industry on what a credible plan may look like as part of the development of regulations.

A number of noble Lords, including the noble Baronesses, Lady Altmann and Lady Noakes, and the noble Lord, Lord Ashcombe, as well as my noble friend Lord Wood, mentioned the position of new entrants. The potential for future market innovation is really important; we are very conscious that scale requirements could, if not done correctly, prevent this future innovation. So the Government have provided for a new-entrant pathway, designed specifically to provide a route for this future innovation. We will monitor future movement in the market to ensure that the pathway is working as intended. In addition to innovation, these schemes will be required to have the strong potential to grow to scale over time.

I dive in briefly to the reserve power and asset allocation. I am clearly not going to satisfy the House today; we will have plenty of time in Committee to discuss this. But I shall make a few points now about it in general and the interaction with fiduciary duty. Questions were raised by the noble Baronesses, Lady Stedman-Scott, Lady Penn and Lady Noakes, the noble Lords, Lord Sharkey and Lord Vaux, my noble friend Lord Davies, the noble Lords, Lord Bourne of Aberystwyth and Lord Evans—and I am going to stop saying these names now.

There is widespread recognition of the benefits that a diverse investment portfolio can bring for savers. That is exactly why the signatories to the Mansion House Accord are committing to invest in private markets. This reserve power will help to ensure this change happens, but we have built in a number of safeguards. Let me just knock one thing on the head. I say to the noble Lord, Lord Ashcombe, that this asset allocation power does not apply to the LGPS. Following an amendment in the House of Commons, the Bill no longer allows a responsible authority, such as the Secretary of State, to direct asset pool companies to make specific investment decisions. I hope that reassures the noble Lord on that point.

On the wider question, the making of regulations under this power will be subject to a raft of safeguards contained in the Bill. To respond to the noble Viscount, Lord Younger, I say that the Government anticipate that we will not have to use this power if all goes well. Were the Government ever to use it, there are a series of safeguards, and we would have to consult and produce a report. We would at that point look at developing how it would be done. Let me briefly touch on the safeguards: first, the power is time limited, and I say to the noble Baroness, Lady Penn, that it will expire if it has not been used. Any percentage headline asset allocation requirements enforced beyond that date will be capped at their current levels. Secondly, and crucially, the Government are required to establish a savers’ interest test in which pension providers will be granted an exemption from the targets where they can show that meeting them would cause material financial detriment to savers. Finally, the regulations will obviously be subject to parliamentary scrutiny but, before that, the Government will need to consult and publish a report on the impact of any new requirements on savers and economic growth both before exercising any power for the first time and within five years of it being exercised.

I am going to have to rush through. I turn to the points raised by the noble Baronesses, Lady Altmann and Lady Bowles, about qualifying assets and investment trusts. I can see that the noble Baroness, Lady Bowles, feels very strongly about this—I listened carefully to the points that she and the noble Baroness, Lady Altmann, made. I say to the noble Baroness, Lady Bowles, in particular that the Government recognise the role that investment trusts play in the UK economy and in supporting the Government’s growth agenda, and we are committed to supporting this important sector. We put that on the record very clearly. However, when it comes to qualifying assets in a reserve power, we have aimed to stick closely to the scope of the Mansion House Accord, which itself is limited to investments made by unlisted funds. That is consistent with our general approach to this part of the Bill, where we deliberately ensure that the powers are suitably targeted and contain guardrails. In other words, they are not intended to be open-ended but should be capable of serving as a backstop to the commitments that pension providers have voluntarily made.

There were a number of points made by my noble friend Lord Davies about consumer protections. I reassure him that consumer protection is a priority for the Government, and ensuring that there are strong consumer safeguards is something we take very seriously. That is why the Bill introduces a number of robust consumer protections, including in the contractual override process, in small pots and in DB surplus. I look forward to discussing these in more detail with him and others in Committee.

My noble friend Lady Warwick raised the question of VFM. I am grateful to the noble Baroness, Lady Coffey, for welcoming that; my noble friend Lord Davies raised it as well. The noble Viscount, Lord Younger, asked about the interaction in different parts of the scheme. The pensions road map, which I am sure he has had the opportunity to read, shows very clearly how the different measures that we are proposing connect and how they are all necessary. They are all key parts of a machine necessary to achieving the Government’s objective of moving the pensions landscape forward. I can tell him that the next step will be a joint consultation by the FCA and the Pensions Regulator, which will be published early next year. This will then inform our draft regulations on value for money, which we intend to consult on during 2026. We expect the VFM framework to be implemented in 2028, with the first set of VFM metrics published in March 2028. The first VFM assessment reports and ratings will then be published in October 2028. On that basis, we would expect to see poor performing schemes starting to exit the market from November 2028.

On the pre-1927 indexation in the Pension Protection Fund and FAS, I listened very carefully to the comments that have been made by my noble friend Lady Warwick, the noble Lord, Lord Bourne of Aberystwyth—I thank him for his thoughtful reflection—and many other colleagues. We are laying the groundwork for the first major step forward in this area, and I think that some credit should be given to the Government for doing that. However, I understand that this will not go as far as many had hoped.

We need to recognise that the PPF maintains a substantial financial reserve. It is not a surplus; it is a financial reserve to protect against future risks. The cost of retrospection and arrears is significant and would greatly reduce that reserve. Any change that reduces the PPF’s reserves will, by definition, reduce the vital security the PPF provides to its current and future members. The PPF has very successfully navigated the past 20 years. It is well regarded as a prudent fiduciary acting in the best interests of pension savers, and we need to ensure that it can continue to do so.

I am going to disappoint my noble friend Lord Davies on the matter of pre-1997 indexation in wider DB schemes. I need to tell him clearly that the Government have no plans to change the rules on pre-1997 indexation for DB schemes. These rules ensure consistency across all schemes, and changing them would increase liabilities and costs. Over three-quarters of schemes pay some pre-1997 indexation because of scheme rules or as a discretionary benefit, but reforms in the Bill, as we have mentioned, will enable more trustees of well-funded DB pension schemes to share surplus with employers and deliver better outcomes for members, which may include discretionary indexation.

I turn to the questions on fiduciary duty, raised by many noble Lords, including the noble Baronesses, Lady Hayman, Lady Bowles and Lady Penn, the noble Lords, Lord Sharkey and Lord Bourne of Aberystwyth, and my noble friend Lady Warwick. It is often said that fiduciary duty is the cornerstone of trust-based pension schemes and that trustees should invest in the best interests of their members. That principle remains fundamental. The Government believe that the current legal framework gives trustees flexibility to adapt and protect savers’ interests. However, at the same time, we acknowledge the calls for more clarity on considering systemic factors, such as climate risk and members’ living standards, when making investment decisions.

My colleague the Minister for Pensions set out in the Commons that we intend to develop guidance for the trust-based private pension sector to provide this clarification. I know that he plans to come forward shortly with more details on what the guidance will look to cover. He has already confirmed how he intends to start engaging with a wide range of stakeholders in producing the guidance, starting with a series of industry round tables early in the new year.

Through guidance, the Government are trying to address a barrier that some trustees say they face when investing in savers’ best interests. Guidance has the potential to support climate and sustainability goals, and our wider goal to improve saver outcomes and unlock pension investment in UK growth. We are still in the early stages of undertaking consultation and exploring options on this, and we will provide further updates in due course.

The noble Lord, Lord Bourne, and the noble Baroness, Lady Penn, asked why we do not just change the primary legislation. It is the Government’s view that introducing statutory changes to refine investment duties could risk creating rigid and complex obligations, which would reduce the ability of trustees to respond to changing investment landscapes and circumstances. On the questions of how and when, we are exploring possible options for taking this forward if and when parliamentary time allows.

The noble Baronesses, Lady Bowles and Lady Coffey, raised the position of trustees, and others also alluded to it. Successful implementation of the Bill’s reforms will rely on highly skilled trustees operating independently, applying good governance and focusing on delivering the best outcomes for savers. That is why we launched a consultation on stronger trusteeship and governance earlier this week. It aims to bring all schemes up to the required standard and explore what changes might be needed to raise the bar for all trustees. The industry has welcomed the consultation and there seems to be a consensus that high-quality trusteeship and governance is vital to ensuring good outcomes for pension scheme members. I encourage anyone with an interest in this area to respond to the consultation.

A number of other points were raised. The noble Baroness, Lady Coffey, talked about the need for a single regulator. I say simply that the Government recognise the importance of clarity and co-ordination in the regulation of workplace pensions. The FCA and the Pensions Regulator work effectively together, including through joint working groups and consultations. They have shared strategies and guidance, and regular joint engagement with stakeholders. The Government keep the regulatory system under review.

The noble Lord, Lord Ashcombe, made some interesting points. The Government are committed to appropriate regulation, and to do that we need to engage regularly with stakeholders and industry to make sure that we get it right. There are some genuine questions, which we will go on to debate in Committee, about getting the balance right between primary legislation, secondary legislation, regulation, supervision, governance and guidance. We need space to be able to engage with industry, because any regulations we produce have to work and the details of the scheme will have to be worked through. That will inevitably mean that there will be times when the House will want more detail than we are able to give. One of the challenges is that it should not be possible both to criticise the Government while they are trying to make their mind up on everything at the same time in some areas and to criticise them for not being open to consultation. We will see how it goes and continue to consult extensively with industry and other stakeholders as we move through this.

A few more points were raised. The noble Lord, Lord Kirkhope of Harrogate, asked about the Pensions Ombudsman. It is important to clarify that the measure on the Pensions Ombudsman neither increases nor widens their powers, nor that of the TPO, beyond what was originally intended. This is reinstating the original intent of the ombudsman’s powers in pension overpayment dispute cases, which were debated in Parliament when the ombudsman was established in 1991. There was a High Court ruling; we are amending the existing legislation because that ruling stated that the TPO is not a competent court in pensions overpayment cases. The aim is to reinstate the original policy intent and reaffirm the government view and that of the pensions industry. I hope that reassures the noble Lord. It restores the original policy intent—that is all. It is not designed to try to widen it. I hope that is an encouragement to him.

On the question of small pots, the noble Lord, Lord Vaux of Harrowden, and the noble Viscount, Lord Trenchard, queried the pot limit. We had to choose somewhere. The initial pot limit of £1,000 will address 13 million stock of small pots, which we think strikes the right balance between achieving meaningful levels of pot consolidation and reducing administration costs for pension providers without distorting the market. However, the Secretary of State will keep the threshold under review to ensure that it remains appropriate as the market continues to develop following the reforms made in the Bill.

A number of noble Lords asked about the position on pensions dashboards. The Government have committed to regular updates to the House—we will be doing another one of those—but let me put some headlines on the record for now. The House will be glad to know that good progress has been made with the pensions dashboards. The first pension provider successfully completed connection to the pensions dashboards ecosystem on 17 April this year, forming a crucial step towards making dashboards a reality. More than 700 of the largest pension providers and schemes are now connected to the dashboards ecosystem; over 60 million records are now integrated into dashboards, representing around three-quarters of the records in scope.

Further, state pension data is now accessible, representing tens of millions of additional records. The pensions dashboards programme is confident that pension providers and schemes in scope will connect by the regulatory deadline of 31 October 2026. When we have assurances that the service is safe, secure and thoroughly user tested, the Secretary of State will provide the industry with six months’ notice ahead of the launch of the Money Helper pensions dashboard.

A number of noble Lords mentioned the gender pensions gap, including the noble Lord, Lord Vaux, and the noble Baroness, Lady Bennett. Auto-enrolment has delivered substantial progress in increasing pension participation among women, which has meant, as the noble Baroness said, that workplace pension participation rates between eligible men and women in the private sector have now equalised. However, it is absolutely right that gaps remain in pension participation and wealth, reflecting wider structural inequalities in the labour market. A gender pay gap leads to a gender pensions gap. Women now approaching retirement still have, on average, half the private pension wealth of men. The Pensions Commission will consider further steps to improve pension outcomes for all, especially women and groups identified as being at greater risk of undersaving for retirement.

That is probably about as far as I can go. I am really grateful to be part of a House with so much interest and knowledge in a subject that not everybody—noble Lords will be shocked to hear—finds as interesting as those of us here today do. However, we do, and I look forward to lots of really interesting discussions in Committee. This Bill marks a decisive step in modernising the pensions system, strengthening security for members, driving better value and enabling innovation across the sector. It combines ambition with safeguards, ensuring schemes can deliver improved outcomes while maintaining confidence and trust. I look forward to working with noble Lords—after they have had a very happy Christmas—and to continuing constructive engagement. I commend the Bill to the House.

[Baroness Penn (Con)]

The Minister has made a valiant attempt to answer all questions. Can she commit to writing to the noble Lords in this debate on the questions she did not reach, and to that letter reaching us before we start Committee?

[Baroness Sherlock (Lab)]

This is the last sitting day before we finish. I will look at what I can put in writing before we get to Committee. I have never been asked so many questions in such a short period—and I have talked to church youth groups. I will see what we can do on that front.

Bill read a second time.

Moved by

[Baroness Sherlock]

That the bill be committed to a Grand Committee, and that it be an instruction to the Grand Committee that they consider the bill in the following order:

Clauses 1 to 118, the Schedule, Clauses 119 to 123, Title.

Motion agreed.

Jobs Market: Wider Economic Implications

Baroness Sherlock Excerpts

Thursday 18th December 2025 Lords Chamber

[Lord Hunt of Wirral]

To ask His Majesty’s Government what assessment they have made of the jobs market, and of the implications for the wider economy.

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

My Lords, there is positive information in the labour market. The claimant count is falling. Over 350,000 more people have moved into work this year. Real wages have risen more since July last year than they did in the first 10 years of the previous Government, and UK growth is forecast to be the second fastest in the G7 after only the United States. However, the latest figures also highlight the challenges and the importance of our Get Britain Working plan, which includes creating a new jobs and careers service, tackling economic inactivity due to ill health and delivering our youth guarantee.

[Lord Hunt of Wirral (Con)]

The Minister omitted to mention that unemployment has now risen to 1,830,000 and, perhaps most chilling of all, that the number of young people without the dignity of work has risen to 735,000. Do the Government now accept that the triple blow of the jobs tax in last year’s Budget, the increased income tax levels in this year’s Budget and the unemployment Act, which received Royal Assent earlier today, have all contributed to the fact that unemployment is rising to 2 million people? What is she going to do about it?

--- Later in debate ---

[Baroness Sherlock (Lab)]

I will tell the House what we are going to do about it: something the last Government never did, which is to take seriously the challenge of so many young people in our country who are not in employment, education or training. What did the last Government do about that? They did nothing. What are this Government doing? A huge amount: in the Budget, we have put hundreds of millions of pounds into a youth guarantee. We are creating guaranteed jobs for young people who are long-term unemployed on universal credit, and we have the former Health Secretary, Alan Milburn, digging down deep into what the driving reason is for why so many of our young people are not out there in the labour market. We are going to solve the problems we inherited; we are doing something about it.

[The Lord Speaker (Lord McFall of Alcluith)]

My Lords, I call on the noble Lord, Lord Campbell-Savours, who is participating remotely.

[Lord Campbell-Savours (Lab) [V]]

With the jobs market hugely influenced by the availability of training, in particular apprenticeship training, should we not positively welcome the £820 million for the youth guarantee scheme, with its emphasis on quality? Is not the lesson that the Government have learned from the YOPs and community programmes of the 1980s that such schemes work only when they incorporate quality, real skills development, and the prospect of long-term employment? Are they not the hallmark of this much expanded and brilliant training programme?

[Baroness Sherlock (Lab)]

I welcome a particularly fine question from my noble friend. I could almost have said that myself; in fact, maybe I will. He makes a really important point. We need to have support in the investment of skills for young people: skills for today and for tomorrow. Simply putting them on to some kind of make-job scheme does not work. We actually need to invest in them, so my noble friend is quite right. At the Budget, we announced £820 million of investment into the youth guarantee to support young people to earn or learn, but there was another £725 million for the growth and skills levy. We are trying to invest in young people so that they will find ways of getting the skills and be inspired to get out there and make a difference.

We also need to understand those who are not engaging. Alan Milburn issued a call for evidence this week. He is asking two questions: what is stopping more young people participating in employment, education or training, and what would make the biggest difference to support more young people to participate? We want to hear from anyone with knowledge, expertise or lived experience, so I urge noble Lords, with all their connections: let us all together try to get the answer to one of the most pressing questions facing our country.

[Baroness Bowles of Berkhamsted (LD)]

My Lords, the Bank of England has canvassed for resignations to cut jobs to save £45 million and use more AI, and many other jobs continue to be lost to AI. What strategy have the Government got to ensure that their AI and tech procurements support British jobs? If mandating is okay for pension fund investments, where is it for government?

[Baroness Sherlock (Lab)]

My Lords, I think I might save the pension fund for the extensive debate we will have later, which is my Christmas present from the Chief Whip. That is all I can conclude. The noble Baroness makes a very important point. One of the things that the Government as a whole are doing is looking across the piece. The truth is that it is still quite early days in working out what, in the medium to long term, will be the impact of AI on the economy. There is evidence that jobs may be displaced in some sectors while in others jobs are created. While we are understanding the full impact, the challenge for us is to make sure we equip people with the skills that enable them to compete in the markets that are to come. There is a lot of work going on in my department, but also in DSIT and across government, to monitor this and develop strategies. In particular, there is work on investing in homegrown tech companies to make sure that we have the opportunities here in which we can invest and our young people can work.

[The Earl of Clancarty (CB)]

My Lords, further to the points made about skills, will the Minister look at a new report by the Creative Industries Policy and Evidence Centre that finds that arts, culture and heritage sectors are all

“losing skilled employees due to low pay, limited progression and lack of flexibility”.

Although our freelance workers should certainly be better supported, there is concern over the levels of permanent creative staffing, including in theatre. How will the Government address these concerns?

[Baroness Sherlock (Lab)]

The noble Earl makes an excellent point. He is a fine ambassador for the creative sectors, for which I commend him. The Government are looking sector by sector at how we can support the development of skills. I am aware that we have had to work quite hard to protect some quite specialist skills, because if we lose them we will not get them back, certainly in the heritage sector. I am happy to look at how our sector work can do that, but what we are trying to do in DWP is to work with a wide range of employers to make sure that we know what they want, what skills they need and how we can support them. One thing that has made the biggest difference—I slightly bang on about it—is my noble friend Lady Smith’s welcome joining up of adult skills and the DWP. That can make a real difference, so I will make sure that we look carefully into that.

[Viscount Younger of Leckie (Con)]

My Lords, I am afraid that I am not yet in the Christmas spirit because, as the Minister herself said, there are huge challenges in the deteriorating jobs market. It is of great concern that jobs in the all-important retail sector have fallen by 74,000, and the chief executive of the BRC has stated that the number of people in work in that sector is at a record low, namely 2.82 million jobs. What are the Government going to do to change the situation, as a matter of urgency, in that sector?

--- Later in debate ---

[Baroness Sherlock (Lab)]

My Lords, the noble Viscount will know that we have a number of what we call sector work programmes to develop skills and support people into many areas of our economy, including hospitality and retail, and many others. I come back to the fact that there are challenges across the globe. The UK unemployment rate is firmly below the EU 27 average. The UK has the third-highest employment rate among the G7—higher than Canada, the USA, France and Italy. I fully accept that these have been challenging times but there has been a reduction in demand across the globe, for a range of reasons. I am confident that things are looking good. We are seeing, for example, that vacancies have stabilised. We are seeing interest rates coming down and businesses getting more certainty, not least from the fact that we now have an Employment Rights Act.

[Lord Mohammed of Tinsley (LD)]

My Lords—

--- Later in debate ---

[Lord Mohammed of Tinsley (LD)]

My Lords, I am more than happy to speak to Alan Milburn, given my long experience of working with NEETs. The question I will ask the Minister is about His Majesty’s Government having two key priorities. One is around net zero and the other is building 1.5 million homes. I want to know: what is the strategy around young people and apprenticeships? I ask this because I spoke to a young person studying at Sheffield College who is doing an electrician course. He is really stressed out that he is unable to get the apprenticeship course he needs to get properly qualified and contribute to the economy, because otherwise he told me that he will look for a job in McDonald’s.

[Baroness Sherlock (Lab)]

I am not going to diss looking for a job in McDonald’s, but I do not want to see anyone unable to pursue the things that they want to do. The noble Lord is absolutely right. We have invested £600 million in a construction package and are working closely with the industry. We have a strategic relationship team in DWP that works with key sectors to try to make sure, if jobs come on stream, that our people get them. We want young people and people who are not in the labour market to get them—those who are struggling with economic inactivity. I am grateful to him for raising that.

[Lord Spellar (Lab)]

My Lords, should not the Government look at the incredible difficulty that youngsters have in getting into work, with very bureaucratic HR processes for making applications? Should they also not say to employers who are on contracts to the Government that they need to provide a certain ratio of training places to qualify for being on government contracts?

[Baroness Sherlock (Lab)]

My Lords, those are two important points. The second quite often happens. I know that the social value element of contracts is something important that we in DWP take especially seriously. On the first point, we must all have had that experience of knowing young people and their heartbreaking experience of sending out application after application, and getting nothing back at all. I understand how tough it is for businesses to manage that, but if any employer is able to do that—to make it as easy as possible to support young people—that is great. One thing we can do in DWP is to support the young people in doing that: to connect them with employers, give them the skills and make sure they are putting in the best possible application in the first place.

Employment Gap for Blind and Sight-impaired People

Baroness Sherlock Excerpts

Wednesday 17th December 2025 Lords Chamber

[Lord Holmes of Richmond]

To ask His Majesty’s Government what plans they have to close the employment gap for blind and sight-impaired people, and by when.

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

My Lords, this Government are committed to providing high-quality support to disabled people, including those who are blind or visually impaired. This group will be supported to enter and stay in work through our pathways to work guarantee and our connect to work supported employment programme. Our progress is monitored through the Get Britain Working outcome metrics, which include indicators such as the health-related economic inactivity rate and the disability employment gap.

[Lord Holmes of Richmond (Con)]

My Lords, if you are blind or sight impaired, in the UK currently the employment rate is just 27%. If you are not disabled, it is 83%. Therefore, if you are sight impaired you have only around a one in four chance of being in work. This cannot continue. Will the Minister strongly consider establishing a taskforce to look at the issues and identify scalable solutions to close this pernicious gap that blights individual lives and scars our economy and society? To be clear: this is not a party-political point. No Government have gripped it. Will this one? Here is the rub: currently, if you are blind or sight impaired in the UK, talent is everywhere, opportunity is not.

[Baroness Sherlock (Lab)]

My Lords, I thank the noble Lord for that question and agree that it is not political. I know that his approach to this is not. I am grateful for how he approaches these issues. There are different views on the statistics. We can have a conversation elsewhere. A lot depends on how the definitions are made but, either way, the disability employment gap is far too big and needs tackling. As the noble Lord will know only too well, things got worse during the pandemic and have not really recovered.

This Government have made a real commitment to engaging, investing significant additional sums of money in supporting people with a range of disabilities and health conditions, including blind or visually impaired people, back to work; lots more tailored support; investment in supported employment programmes; and making sure that there are specialist disability employment advisers and coaches who understand how they can help people. We are also working with employers. I can talk more about that if it is helpful.

I am not in a position to announce a taskforce today, but we have announced the Independent Disability Advisory Panel. The membership will be announced shortly. The Government are taking very seriously the need to listen to the voices of disabled people, including blind and visually impaired people, as well as talking to the organisations that support them. I would welcome having further conversations with the noble Lord about how we can get this right.

[Baroness Kramer (LD)]

My Lords, the Minister acknowledges the sight-loss employment gap. How many full-time equivalent disability employment advisers are employed by the DWP—and do all DEAs have specific sight-loss training? Do access to work assessors and jobcentre staff have sight-loss training and, if they do not, will the Government seek to remedy this?

[Baroness Sherlock (Lab)]

I am not sure we have any published statistics, but my best understanding at the moment is that there are more than 800 disability employment advisers and DEA leaders. The Government’s aim and commitment is that every work coach will have access to a specialist disability employment adviser. The DWP provides particular learning for those who come into that DEA role, and that includes specific content relating to blindness and visual impairment. It is intended to give awareness of the challenges that people with sight loss who come to us may face, highlights the support we can offer, and explains what the DWP’s responsibilities are. As an organisation, we are looking specifically to improve that. The Government have recognised that we need to be investing more. We are going to put more money in over the rest of this decade, investing more money in hiring, improving the quality and the quantity of support providing help to disabled customers. We aim for it to be tailored to each individual circumstance, and that is what we ought to do. The answer is yes, we are investing in training as well as in having people on the ground who can help.

[Baroness Prosser (Lab)]

My Lords, I have been registered as partially sighted since December 2020. While I absolutely agree with the point of the Question regarding the need for employers to be more alert and more open to doing things differently—artificial intelligence plays a major part in helping blind and partially sighted people to see and proceed—I wonder whether the Minister will take away the point I wish to make, which is that there is a great deal of room for improvement in this House itself. There are many people who are very helpful but, overall, the system is completely dysfunctional. I thank the Lord Speaker for the work he has done in trying to bring this to the attention of leaders of various departments in the House, but there is no overall programme; there is in all the Civil Service departments but not in the political wings of our work. I hope the Minister will take that message away with her.

[Baroness Sherlock (Lab)]

I am grateful to my noble friend for raising that and for bringing her personal experience to the fore here. My department is responsible for disability in government, and we work very hard to be as accessible as possible. We have significant numbers of staff and colleagues who themselves have a range of disabilities, including sight impairment, and we work constantly to improve what we do and what we offer in that space. On Parliament, I think she makes a good challenge. The fact that Parliament is not subject in the same way as other employers to some of the legislative requirements does not mean that we should not do just as good a job as other people and try to make it better. I am very happy to talk to the House authorities on her behalf about how we continue to make progress in that area.

[Lord Forsyth of Drumlean (Con)]

My Lords, is the issue here not that the Equality Act applies to the staff in this House but not to the Members? Should that not be sorted so that Members are given the kind of support that we see in other parliaments—such as, dare I say, the European Parliament—where they are given the support to carry out their activities?

[Baroness Sherlock (Lab)]

I have always known the noble Lord as a good European—I am glad to hear him speaking up for the European Parliament today. To be honest, I am not sure we can use that as an excuse. We do not have to be made to do something to do it, and the House should look at it.

[Baroness Watkins of Tavistock (CB)]

My Lords, I had an aunt who was blind from birth, was funded to train as a physiotherapist—that was on careers advice at school—and worked for 43 years full-time. Is consideration being given to ensure that young people who have long-term permanent sight problems get the right career advice?

[Baroness Sherlock (Lab)]

I am grateful to the noble Baroness. Like her, I have had the benefit of a physio- therapist who is herself blind and is very good indeed. The noble Baroness makes an important point. We have been working really hard with our colleagues who work with the young people who come in. The reason we try to have tailored advice is to work out what works for that person. Just because it worked for the noble Baroness’s aunt, it might not work for her next-door neighbour in the same circumstances. It is about trying to find out what somebody is able to do, wants to do and has a passion for, and how we can give them skills and support.

One of the great joys of having my noble friend Lady Smith join us as Minister for Skills in the DWP as well as the DfE, getting the remit for adult skills, is that it is helpful to join up what we are doing to try to find opportunities for and support individuals, with them having the skills to enable them to follow through on that.

[Lord Watts (Lab)]

My Lords, the Conservative and Liberal coalition Government did away with Remploy. At the time that they abandoned Remploy, many of us said that it would leave the disabled exposed. Is it not the case that they did not make any provision for those people who were previously employed through Remploy?

[Baroness Sherlock (Lab)]

My Lords, I cannot speak to exactly what happened at the time that was abolished. What I can say is that this Government are absolutely committed to supporting people. I talk to brilliant, inspiring disability advocates in my organisation—advisers who have customers who come in and start out thinking there are not things that they can do and end up having jobs found for them and being supported into them. I want to do two things: enable people to get all the help they can, and persuade employers, many of whom want to hire disabled people but do not know how, that they can hire them and that they can thrive and be a real asset to the organisation. We should all get behind that.

[Baroness Buscombe (Con)]

My Lords, to the Minister’s point about employers, I remember that in government we offered all employers up to £52,500 per year for every person with disabilities to be supported into work. What has happened to that offer?

[Baroness Sherlock (Lab)]

I am not sure what the noble Baroness is referring to but, if I can find out, I will be very happy to write to her. We now have something called the support with employee health and disability service, which was developed with input from smaller businesses and disability organisations. It gives employers tailored step-by-step guidance as to how they can support employees in common workplace scenarios involving health and disability. It helps employers to understand their legal obligations and what reasonable adjustments may look like, and it even goes down to helping them feel confident having sometimes tricky conversations, either with a new member of staff or somebody whose health or disability may be changing. We know that lots of employers want to do the right thing; our job is to help them to do it well.

Occupational Pension Schemes (Collective Money Purchase Schemes) (Extension to Unconnected Multiple Employer Schemes and Miscellaneous Provisions) Regulations 2025

Baroness Sherlock Excerpts

Wednesday 10th December 2025 Lords Chamber

Moved by

[Baroness Sherlock]

That the draft Regulations laid before the House on 23 October be approved.

Relevant document: 40th Report from the Secondary Legislation Scrutiny Committee. Considered in Grand Committee on 8 December.

Motion agreed.

Universal Credit: Two-child Limit

Baroness Sherlock Excerpts

Wednesday 10th December 2025 Lords Chamber

[Lord Farmer]

To ask His Majesty’s Government what assessment they have made of the impact on work incentives of lifting the two-child limit in Universal Credit.

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

My Lords, this Government are determined to lift children out of poverty, and removing the two-child limit is the fastest and most cost-effective way to do so. The benefit cap is still in place, encouraging parents to take responsibility and work towards financial independence. Our approach balances fairness and provides a strong safety net without undermining the incentives to work.

[Lord Farmer (Con)]

My Lords, recent international evidence found that unconditional cash transfers increase fertility. Families claiming health-related benefits are not capped, so even these workless families will get UC for every child, again affecting work incentives. Research by the Institute for Fiscal Studies found that money-per-child tax credits increased births by 15% and decreased contraceptive use among beneficiaries. Have the Government assessed whether lifting the two-child limit will incentivise more births in benefit-dependent households, and whether many of the 450,000 children this measure intends to lift out of poverty would not otherwise have been born?

[Baroness Sherlock (Lab)]

My Lords, the Government have seen no evidence that the two-child limit had an impact on family size. For example, 47% of households affected by the two-child limit were not claiming universal credit when any of their children were born. In other words, things happen; people set out, they have children and something happens. Maybe someone loses their job, they are bereaved, their spouse leaves them, or they get sick and cannot work. The welfare state should be there to support people, both into work and in work, but it is also there to support them when they cannot work. We already know that some 60% of households affected by this are in work. Our strategy is to make sure we do all we can to get people into work, get them to develop in work and support them, but we are there as a safety net when they cannot do so.

[Baroness Lister of Burtersett (Lab)]

My Lords, academic research has found that the two-child limit had no positive employment effect and that parents living in poverty are pushed further from the labour market because of stress, insecurity and the sheer hard work of struggling to get by. Does my noble friend therefore agree that a decent social security system can support effective job-seeking and plays an important role in tackling child poverty, as the child poverty strategy recognised?

[Baroness Sherlock (Lab)]

My Lords, my noble friend makes a really important point about the scarring effects of poverty. Our aim is to make sure that everyone who can work, does, with all the help they need to do that. That is what this Government have been doing. We are investing heavily in childcare to make it possible to work, making sure wages pay enough so that work is a good thing, and supporting children.

We know that when children grow up in poverty, things get worse for them. They are less likely to work as adults, and they earn 25% less at the age of 30. Even if some parts of the House are not persuaded on the grounds of the importance of the individual child, this is an investment in the future of our country. No other G7 country has a policy like this and there is a reason for it. We cannot compete on the world stage, grow our economy or create prosperous futures for our kids if we do not enable them to grow up thriving and healthy.

[Lord Palmer of Childs Hill (LD)]

Does the Minister agree that this is not about getting people back to work; it is about improving living standards and making sure children are safe, and that this Question, which tries to link people getting into work with this benefit, is completely ridiculous?

[Baroness Sherlock (Lab)]

My Lords, I think I have made my views clear on the impact of this policy. It is, in essence, a failed social experiment which has been pushing 100 children a day into poverty. We simply cannot allow that to happen. We want to support families. Most parents want to work to support their kids. Already, 84% of parents are in work—that is what people do. I used to work with single parents, who would say, “Even when it’s really a struggle, I want my kids to see this is what you do when you grow up”, but many people face barriers to work, and it is our job to make that possible. If you cannot afford childcare, how can you get to work? If you are not paid enough to be able to make life even bearable, how can you do that? The social security system should be there to support those who cannot work, but for those who can, to make it possible and to help them have a decent standard of living when doing so.

[Baroness Deech (CB)]

My Lords, around £450 million is owed to the Child Maintenance Service by absent fathers and some absent mothers. Some 160,000 children would be lifted out of poverty if the defaulting parents paid what they owed to the Child Maintenance Service. Does the Minister agree that is not right for the taxpayer to pick up the burden owed by defaulting parents and that the Child Maintenance Service must get that money from the parents?

[Baroness Sherlock (Lab)]

My Lords, the great advantage is not an either/or. The wonderful thing about child maintenance is that it does not impact on somebody’s social security, so if someone is working and getting some universal credit, maintenance tops that up further. The Child Maintenance Service does an astonishing job in many, sometimes very challenging, circumstances. Here is one simple statistic: since the Child Maintenance Service was set up in 2012, it has collected 93% of all the maintenance owed, but I am sorry to say that there are some parents who simply do not want to pay for their children. The Child Maintenance Service has astonishing powers. It will go after them, and it will keep after them, but we should encourage everybody to do the right thing: pay for your children, go out there and make it possible for them to have a decent life.

[Lord Gove (Con)]

My Lords, if this policy is such a good idea, why was the Whip removed from seven Labour MPs in the other place when they voted in favour of it last year?

[Baroness Sherlock (Lab)]

My Lords, perhaps the noble Lord knows more than I do about the state of the economy that this party inherited when we came into government. We have dealt with all the challenges that his Government left behind. Chief among those was the state of—not just support for children—the welfare state. We had huge numbers of people who had been abandoned. Under the last Government, the bill went up by £88 billion. This Government came in with a budget. We invested £1.5 billion in employment support; we have reformed Motability and universal credit. We are going to make a difference. We care about children.

[Lord Winston (Lab)]

My Lords, can we come back to the original Question? We have had some very spurious statistics about fertility and contraception. Does the Minister agree that contraception has been hugely important in getting women back to work and earning money?

[Baroness Sherlock (Lab)]

I am grateful to my noble friend for calling me back to order. The availability of contraception has been transformative for women, and we should all recognise that. Being able to have control over their fertility makes an enormous difference to the choices that women make. For many of them, it means they can work and manage family size most of the time. However, we want to enable mothers and fathers both to have children and to work. That is the job of the state. Mothers should not have to choose between having kids and having a job. Families should never have to do that. The job of the state is to make both possible for the sake of those families and those children.

[Lord Londesborough (CB)]

My Lords, child poverty is undoubtedly a serious issue, and the steep drop in the number of children being born in this country is perhaps even more serious. Last week, we learned that the average cost of raising a child has now risen to £249,000, according to research by Moneyfarm, which may explain why an increasing number of working parents choose to have just one child or none at all. Down the line, this means a shrinking workforce in an ageing population. What is the Minister’s view on this?

--- Later in debate ---

[Baroness Sherlock (Lab)]

My Lords, the noble Lord makes a really important point, which is that we need as a country to make sure that we prioritise the cost of living and enabling people to earn enough. It should be possible to go out to work and earn enough to support your family, but that is one reason why we think it is important to invest in appropriate levels of social security. Crucially, we have to help people to develop skills. We want people to get into work, but we do not want them stuck on the lowest-paid work. We have increased the national minimum wage and invested in childcare and free school meals—we are doing all the things to make it possible to do the right thing. However, we need to go further. We need to see people in this country in higher-skilled, higher-paid jobs that will help them, grow our economy, and create opportunities for their children in due course.

[Viscount Younger of Leckie (Con)]

My Lords, can I bring the House back to the original intention behind the two-child limit? It was to make the benefits system fairer to taxpayers who support themselves and their families solely through work. It encouraged parents on benefit to make the same financial choices about family size as those not on benefits. With the Government’s poverty argument in mind, the IFS has said that reversing the two-child limit is “not a silver bullet”. It said that the benefit cap will

“wipe out the gains for some children in the … poorest families”,

as 70,000 more households are affected by the cap. Surely supporting parents into work and into quality jobs is much more important for reducing child poverty. Finally, the IFS says that raising the employment rate to 80% from the current 75% would lift up to 350,000 children out of poverty.

[Baroness Sherlock (Lab)]

My Lords, that is why the Government have set that as their target. I say to the noble Viscount that the whole point about this is that it is not a choice. It is not a question of either supporting children or helping parents to go into work. Supporting families makes work possible. Most parents want to work. Our job is to make that possible, so we have done that. We have invested in expanding free school meals to everyone on universal credit, including those in work; we have raised the national living wage, and we have put in more help for childcare—30 hours a week for parents of preschoolers—and more help for childcare in universal credit. Children deserve the best possible start in life and their parents deserve the best chance to have a decent life. We want to do both.

Occupational Pension Schemes (Collective Money Purchase Schemes) (Extension to Unconnected Multiple Employer Schemes and Miscellaneous Provisions) Regulations 2025

Baroness Sherlock Excerpts

Monday 8th December 2025 Grand Committee

Moved by

[Baroness Sherlock]

That the Grand Committee do consider the Occupational Pension Schemes (Collective Money Purchase Schemes) (Extension to Unconnected Multiple Employer Schemes and Miscellaneous Provisions) Regulations 2025.

Relevant document: 40th Report from the Secondary Legislation Scrutiny Committee

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

My Lords, I am pleased to introduce this instrument. Subject to the approval of this Committee, these regulations will be another significant step forward in the reform of our occupational pensions framework, building on the foundations laid by the Pension Schemes Act 2021 and the Occupational Pension Schemes (Collective Money Purchase Schemes) Regulations 2022. The primary purpose of these regulations is to extend the legal framework for collective money purchase schemes—commonly known as collective defined contribution, or CDC, schemes—to allow multiple unconnected employers to participate. Until now, CDC schemes have been restricted to single employers or groups of connected employers.

I have been advised that there are two minor drafting errors in Schedule 2 to the SI as laid in draft, resulting in two cross-headings before paragraph 2 where there should be only one and a repetition of “regulation” in paragraph 2. The intention is for these to be corrected in the version that is made so that there is a single cross-heading reading “General” and a single appearance of the word “regulation” in paragraph 2. I apologise for these errors, but I assure the Committee that these corrections do not change the legal meaning of Schedule 2 in general or paragraph 2 in particular.

Before I move on to the detail of this instrument, it may be helpful if I give some context. The Pension Schemes Act 2021 provided the statutory framework for CDC schemes in the UK. The Government believe that CDC schemes have an integral role to play in addressing the challenges faced in our pensions system, so long as the guiding principle is to ensure that we protect the interests of members. Although good progress has been made, four in 10 working-age people are under-saving for their retirement. CDC schemes can help address this issue: by pooling longevity and investment risk across the membership, such schemes have the potential to target higher investment returns for their members than a DC scheme. CDC schemes also have potentially infinite investment horizons and no need to lifestyle investments, which means they can invest productively for longer. Industry modelling suggests that CDC schemes could boost retirement income by anywhere between 25% and 60%. The Committee will agree, I am sure, that if such increases in returns were realised, CDCs could really help address the issue of inadequate retirement incomes.

CDCs can support the wider economy, too. Longer investment horizons mean greater investment in vital UK infrastructure and the technologies of the future, such as renewable energy. Pooling can also shield savers from much of the uncertainty and risk faced by members of DC schemes, which is especially important as they approach retirement. CDC schemes offer members a seamless transition from saving into receiving a trustee-managed retirement income. We know that many people do not want—and, indeed, feel ill-equipped—to make complex financial decisions at retirement. Some 72% of DC members want a pension income yet 50% of pots are taken fully as cash, exposing them to individualised longevity risk. CDC schemes provide a target income for life and will target at least inflationary increases in member benefits at a scheme’s outset, helping members’ money keep pace with the cost of living through their retirement.

The Government want to ensure that as many savers as possible can take advantage of these benefits. That is why we have introduced this legislation. This instrument opens the door for broader adoption of CDCs: it will allow different, unconnected employers to participate in the same scheme, including smaller employers who lack the scale or expertise to go it alone. It also opens the door to CDC being a solution for specific sectors and for commercial schemes. For employers, the benefits are clear. Their liability is no greater than in a DC scheme, with contributions being made in the same way. Yet, with the aforementioned benefits, CDC schemes can be a valued employee benefit, allowing employers both to attract and retain talent in a competitive labour market.

I will now dive into the detail of this instrument, and there is, of necessity, plenty of detail. Despite the successful launch of the Royal Mail collective plan last year, CDC remains a relatively novel concept. It is critical that employers and their employees can have confidence in CDC pensions. The Government therefore make no apology for this instrument setting a high bar for entry. The robust authorisation and supervisory framework introduced by this legislation means employers can be confident they are joining well-run, well-governed schemes.

Part 2 of this instrument removes the exclusion in the Pension Schemes Act 2021 which limits the schemes that can be collective money purchase schemes to schemes used, or intended to be used, by single or connected employers. This allows for the creation of unconnected multiple employer schemes. Part 2 also amends the definition of a qualifying scheme, so that a broader range of organisations can set up a collective money purchase scheme. This will enable commercial organisations to establish unconnected multiple employer schemes.

A scheme applying for authorisation must satisfy the regulator that it meets the authorisation criteria. These criteria are listed in Section 9(3) of the Pension Schemes Act 2021. Part 2 amends the existing authorisation criteria in the 2021 Act and thereby creates additional criteria, specifically for unconnected multiple employer collective money purchase schemes. We have identified persons that we consider will have important roles in unconnected multiple employer CDC schemes and have brought these people within the scope of the “fit and proper persons” test, so that they are subject to appropriate scrutiny.

Regulation 10 amends the 2021 Act to require that the scheme has a single scheme proprietor meeting specific criteria and the specific requirements set out in new Section 14C of that Act. As we are seeking to extend CDC provision to unconnected multiple employer CDC schemes, we know there will be new entities involved in the operation and funding of these new types of CDC scheme. We want to ensure that any financing required to meet relevant costs is credible and realisable, so that it is available at the point of need. Therefore, the scheme proprietor’s ability to deliver such financing will need to be assessed by the regulator, both at authorisation and on an ongoing basis.

Regulation 10 of the instrument also inserts a business plan requirement under new Section 14A of the 2021 Act. The scheme proprietor would be required to prepare, maintain and submit a business plan to the regulator, which will include the key financial information for its financial sustainability assessment. The detailed content of the business plan is set out in newly inserted Schedule 1B to the 2021 Act.

These regulations will permit schemes that intend to operate on a commercial basis. This will involve acquiring new business through the promotion or marketing of their scheme. To mitigate the risk of schemes overpromising to gain a commercial advantage, or mis-selling, we are introducing a new promotion or marketing authorisation criterion for these schemes. The requirement is that no person has carried out promotion or marketing of the scheme that is unclear or misleading without rectification, and that the scheme has adequate systems and processes for ensuring that its promotion or marketing is clear and not misleading.

We also want trustees of these schemes to focus entirely on the interests of the scheme members and to have complete autonomy to do so. If the trustee were also to act as a person who promotes or markets the scheme, or as the scheme’s CFO, it would detract from that responsibility and create a clear conflict of interest. Regulation 5 makes a separation of these roles a criterion for authorisation. The Government’s intention is that running an unconnected multiple employer CDC scheme as a closed scheme should always be an option open to trustees, where it is viable to do so, and to the extent permitted under wider legislation. Regulation 5 therefore inserts a new authorisation criterion into the 2021 Act to ensure that trustees can choose this option if appropriate.

Finally, on Part 2, Regulation 6 imposes a mandatory deadline of 24 months from authorisation by which an authorised unconnected multiple employer CDC scheme must start being operated. This is to deter speculators. We want only people or organisations that are fully committed to providing well-run and soundly designed unconnected multiple employer CDC schemes to apply for authorisation.

Part 3 of this instrument supplements the meaning of “connected” in Section 49(2)(a) of the Pension Schemes Act 2021. This is relevant for determining whether a collective money purchase scheme is a single and connected employer scheme or an unconnected multiple employer scheme and therefore which of the two legislative frameworks applies to it.

--- Later in debate ---

With that, I conclude my remarks.

[Baroness Sherlock (Lab)]

My Lords, I am grateful to the Committee for the handful of questions that has been offered up. I share with the noble Viscount, Lord Younger, disappointment that there are not hordes of colleagues here wanting to question these regulations. They are extremely important and utterly fascinating, but there is no accounting for taste—what can we say? I am very grateful to him and to my noble friend Lord Davies of Brixton for being here, asking such excellent questions and keeping me on my toes. I am going to try to work my way through them.

It is worth saying at the outset that my noble friend Lord Davies had quite a nice analogy about moving into a house. I moved house a year ago, and he is absolutely right—I now realise there should be power points in the middle of my kitchen where I actually use my devices and none of them are there. However, the reality is that there have to be some power points; some decisions have to be taken. At some point down the line, I may decide on additional power points and just have them put in. There may be new lights in the house, but we have to start off with lights, and we may add more lights later.

We have gone to considerable care to make sure that the system is set up as robustly as possible, but we will adapt and learn as we have experience from this. That is an important question, but it is one I am happy to offer reassurance on.

We think that CDCs are a type of money purchase because there is a type of money purchase benefits in the legislation. They are covered by the legislation applying to money purchase benefits and not DB benefits. I can see him shaking his head; I have failed to persuade him, but I will keep trying on subsequent questions.

My noble friend mentioned in passing that there are lots of different kinds of legislation and asked how they join up. I assure him they absolutely do join up. The Government have a vision for the pensions landscape. Most of these issues are coming in stages; for example, we have made our views known; we have had comments and clear steers from the Chancellor; we have had the pensions investment review, which set out the landscape, and as a result of that, we have the Pension Schemes Bill, which starts next week and which he and I are looking forward to so much. That will make the necessary adjustments to the landscape so that the Pensions Commission, which is doing its work on issues such as adequacy, can make sure that if savers, or indeed employers, are encouraged to invest more, or in different ways, the market is fit for it at that point.

These things do connect; I accept that they are complicated. One of the challenges is that pensions are very complicated, and there is a lot of money at stake, and therefore it matters—he raised the point about regulation—that we get that absolutely right.

My noble friend mentioned in passing the question about retirement CDCs. He will be aware the consultation has just closed and so more information on that will be coming out soon. He asked about whether CDC schemes will be captured by things such as the scale requirements in the Pension Schemes Bill. Because CDC schemes are a new and innovative development with the potential to offer improved outcomes, they will need to have a degree of scale and a long investment horizon to enable them to invest in a wider range of assets, including productive assets. It is right to give this new market the space to develop with confidence, but we are going to keep the requirements for these schemes under review as the market develops.

He asked about how the legislation will ensure fairness between members of different employers. Regulation 40 specifies that any adjustment to benefits that may need to be made must be applied to all members “without variation”. Regulation 40 also requires that benefit rates must be determined on the principle of actuarial equivalence and that, as he will of course be only too aware, is achieved when the expected accrual and expected contribution levels are equal over a period of time. That prevents new entrants unfairly subsidising existing members and avoids cross-subsidies between employers, which could, for example, happen if one employer had a younger workforce than another.

Both he and the noble Viscount, Lord Younger, asked about communication to members of CDC schemes. The regulations require schemes to inform members regularly and clearly that the rate or amount of benefits provided under the scheme is not guaranteed and can fluctuate. This includes providing this information at joining, annually and in retirement. CDC schemes are also required to have adequate systems and processes for communicating with members and must provide information in their authorisation application about monitoring them to help ensure the systems and processes remain effective. To ensure transparency, key scheme information must be made available on a publicly available website, including the scheme rules, a summary of the scheme design and information about the most recent actuarial evaluation of the scheme.

My noble friend commented about whether the regulation is all too burdensome or too hard to join, but as in DC schemes, members will bear all the risks of the CDC scheme in accumulation and decumulation. So, we think it is only right that we make sure these schemes are well-designed, well-run and resourced properly so that employers, members and the Pensions Regulator can have confidence in the scheme at authorisation and on an ongoing basis.

My noble friend raised the question of commercial interests. I know he was not necessarily challenging there being commercial providers; it was more about the language and how that is understood. We have worked quite hard to make sure that the authorisation criteria require a clear separation between the trustees and those funding the scheme, promoting the scheme and trying to make a profit out of it. The promotion and marketing authorisation criterion mitigates against the risk of overpromising to gain a competitive advantage, as I said in my opening speech. Although my noble friend does not like the term “proprietor”, the financial sustainability requirements are designed to prevent that person passing on to members the costs of setting up and operating the scheme.

--- Later in debate ---

[Viscount Younger of Leckie (Con)]

I thank the noble Baroness for spelling out the code of practice; we look forward to seeing that. I remain quite surprised that the Pensions Commission will finally report as late as spring 2027. I cannot believe it is going to take that long, despite the fact that pensions are generally known to be quite technical and detailed. I am not expecting the noble Baroness to comment on that, but I just wanted to put it on record. The noble Baroness did not answer my question about surpluses, and I am very happy to be written to about that. Perhaps the main question I wanted to ask, which the noble Baroness also did not answer, is about membership take-up at Royal Mail. What was the rate of take-up for the Royal Mail scheme?

[Baroness Sherlock (Lab)]

On the question of surpluses, the regulators will ensure that a scheme has sufficient financial resources through a range of key mechanisms centred around the role of a scheme proprietor, robust planning and ongoing regulatory oversight. The Pensions Regulator must be satisfied that the scheme is financially sustainable before it can be authorised. That would obviously involve a rigorous assessment of its expected costs, income and the strategy for recovering any shortfalls. The schemes accounts have to be submitted to the regulator on an ongoing basis to give transparency. I am not sure that that does answer his question on surpluses, but if I have an answer, I will write to him.

On the membership take-up of the Royal Mail scheme, 110,000 people have joined and around 700 have opted out. I hope that answers that question, and that I have answered all the other questions. I thank both noble Lords for their helpful contributions to this debate. This instrument will allow CDC schemes to play an integral role in the future of pensions in this country, affording potentially millions of savers access to the benefits they offer. With that, I commend this instrument to the Committee, and I beg to move.

Motion agreed.