Pension Schemes Bill

Lord Palmer of Childs Hill Excerpts

2nd reading
Thursday 18th December 2025 Lords Chamber

[Lord Palmer of Childs Hill (LD)]

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

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

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

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

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

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

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

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

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

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

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

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

Pension Schemes Bill

Lord Palmer of Childs Hill Excerpts

Committee stage
Monday 12th January 2026 Grand Committee

[Viscount Trenchard (Con)]

My Lords, I support this amendment, which was so well introduced by my noble friend Lord Younger and so well spoken to by the noble Baroness, Lady Bowles of Berkhamsted. The Bill is very complicated. It is not absolutely clear to me what it means. It is also, as my noble friend Lord Younger explained, a skeletal Bill without a clear purpose to improve the outcomes for savers. In particular, looking at the value-for-money part of the Bill, it is not clear how this is going to work, what the metrics will be and how they will be assessed.

I think it is right to table this amendment in order to understand the purpose of the Bill. I am not clear that the Bill is primarily intended to improve the outcomes for pensioners or to find ways to fund government initiatives to make certain investments with pension savings that the trustees and managers might not have decided to make, which may require them to compromise on what should be their complete and clear duty to exercise their fiduciary responsibilities.

Can the Minister tell the Committee how the Bill is certain to improve outcomes for pensioners beyond what they would have been without government interference in the management of these funds? The Bill interferes with the trustees’ fiduciary duties not only with the mandation powers to direct investments, which apply only to very large DC schemes—the kind to which less well-off pensioners have contributed—but with the powers to require the 93 local government pension schemes to pool their funds together. How is this going to work if, at the same time, the Government are forcing many local authorities to merge or demerge under local government reorganisation?

I look forward to hearing the Minister’s response and approach to this amendment.

[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.

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[Baroness Altmann (Non-Afl)]

My Lords, I had basically finished—I just wanted to say that, if we are not going to turn the £400 billion or so into a sovereign wealth fund, it would be preferable if the Government did not try to direct the investments.

[Lord Palmer of Childs Hill (LD)]

I simply ask the Minister to explain how local accountability will be preserved, how fiduciary duties will be protected in practice and why so much of this is not in the Bill.

[Lord in Waiting/Government Whip (Lord Katz) (Lab)]

My Lords, I am grateful to noble Lords for these amendments in the names of the noble Viscount, Lord Younger, and the noble Baronesses, Lady Stedman-Scott, Lady Bowles of Berkhamsted and Lady Altmann. Before I proceed, as we have had a bout of putting things on the record and making declarations, I should say that I served for a mercifully short time as a councillor in the London Borough of Camden from 2010 to 2014 and, as a consequence, am a member of that council’s pension scheme, but I think that has pretty scant bearing on our discussions this afternoon.

On Amendments 2 and 6, I recognise the intention to preserve the independence of the Local Government Pension Scheme administering authorities and to reduce the burden of regulation on their function. I will say now, so that I do not forget, that I appreciate that the noble Viscount, Lord Younger, asked a great deal of questions on amendments not just in this group but in groups to come. It was very helpful to have his explanation about degrouping; we are very happy to debate the Bill in the way the Committee sees best. I also put on record the welcome recognition by many Members who spoke on this group, particularly the noble Lords, Lord Davies and Lord Fuller—although in slightly different ways—of the importance and success of the LGPS. It is worth being clear that the Government are determined to make sure that success continues.

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[Baroness Altmann (Non-Afl)]

My Lords, in moving Amendment 8, I will speak also to Amendment 13, in my name. The aim of this amendment is to focus on the flow of money going into these schemes, rather than just the investment of the stock of assets that are already held, which has been the focus so far and is generally the focus of everything else in the Bill. Both are important.

Take, for example, value for money for taxpayers and members. With so much money going in each year—the latest estimates are £10 billion a year of employer contributions alone, let alone the members who are local workers—there seem to be strong reasons why we should expect targets to be set. If we are setting targets for other types of areas of investment, and for the investment of new contributions, we should have a local or national focus, or both.

This is obviously a probing amendment. As I declared at Second Reading, I support all private pension schemes also having an incentive to invest a certain percentage—I have suggested 25%—in UK growth assets. I have described UK growth assets in Amendment 13 as including listed and unlisted equities, infrastructure and property, as we have been discussing, all designed to boost long-term UK growth. I hope that the Minister will be able to explain whether the Government have specific objections to this idea and, if so, why?

If the Government are intent on mandating specific asset pools to invest in certain ways, why would they be reluctant to set certain aims or requirements for the new contributions of what are, in effect, publicly underwritten pension schemes? If we are intent on having mandation, requiring asset pools to invest in certain ways and requiring these funds to invest in them, and if we are not, as we will come to later, looking at ways of permitting employers to either significantly reduce their contributions or have a contribution holiday, would it not be sensible for the Government to look at directing those contributions—which are being paid into a scheme that does not need the money, as far as the actuarial certifications are concerned—to invest to boost long-term growth? I beg to move Amendment 8.

[Lord Palmer of Childs Hill (LD)]

This is an important, basic matter. Directing investment by asset types raises difficulties. If pension funds or individuals knew which assets were going to go up, there would be no problem, but there is no guarantee of that, so, my question to the Minister is: are pension funds primarily long-term investors acting for members or instruments of policy delivery? The answer matters a lot for confidence in Local Government Pension Scheme governance. I am all for productive investment, but it can be a slippery slope if you get it wrong. I wonder whether the Minister can give us some guidance on that.

[Viscount Younger of Leckie (Con)]

My Lords, I thank the noble Baroness, Lady Altmann, for her two amendments in this group, for the remarkably brief discussion that has been prompted and for the opportunity that they provided for her and us to probe the Minister on these important issues. Noble Lords will be pleased to hear that I will not rehearse the arguments at length, as I touched on them in some detail earlier. However, I wish briefly to reiterate what I regard as a central and non-negotiable principle: the Local Government Pension Scheme exists first and foremost as a fiduciary vehicle. Scheme managers are under a clear legal duty to act in the best financial interests of members and beneficiaries, and that duty must remain paramount.

Against that background, Amendment 13 raises a particularly important question, one that has been put to us repeatedly by industry representatives from a wide range of backgrounds; namely, what type of assets do the Government have in mind in which funds should be directed to invest? I think this is the essential argument of the noble Baroness, Lady Altmann. Is the intention to focus on infrastructure, debt servicing or supporting new towns and similar developments? The noble Baroness also raised the point of what percentage should be invested in UK assets. As she pointed out, perhaps 25% should be invested in UK growth assets, and, therefore, what is the definition of growth? Lots of questions arise from the noble Baroness’s amendments.

I recognise, and I think the noble Baroness alluded to this, that we will return to this issue in greater detail when we come to consider the reserve power, but like the noble Baroness, I wish to flag this matter at this stage as it has been a theme this afternoon on this first day of Committee and a live and pressing question not only for us but, I reiterate, for the many third-party stakeholders with whom we have engaged.

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[Lord Palmer of Childs Hill (LD)]

I have always reckoned that the duty of pension fund managers is to the members. What we are trying to do now is say that they have other duties; however, it is not very clear where the borderline is.

[Baroness Stedman-Scott (Con)]

I know how frustrating it is when Members keep getting up to ask questions, but I have to do this. The Minister referred to a backstop. For what purpose? In what circumstances would it be used? Can the Minister help us understand that?

Pension Schemes Bill

Lord Palmer of Childs Hill Excerpts

Committee stage
Wednesday 14th January 2026 Grand Committee

[Baroness Stedman-Scott (Con)]

My Lords, it is a pleasure to open today’s debate on the remaining groups of amendments relating to the Local Government Pension Scheme. We are conscious that Ministers have already undertaken to write to the House on a number of points, and we do not wish to add unduly to that correspondence or set exam questions. However, we hope that today’s debate may allow some of these issues to be addressed in real time.

Let me be clear at the outset that this is a probing stand-part notice intended to seek clarity from the Government. Clause 6 is striking in its brevity, but the power it confers is anything but modest. It would allow scheme regulations to provide for the merger explicitly, including a compulsory merger, of local government pension funds. Compulsory merger is a significant and, in many cases, irreversible intervention. It has profound implications for governance, funding positions, local accountability and, ultimately, the retirement savings of millions of scheme members and the obligations of employers. We are dealing here with very substantial sums of public money and the livelihoods of millions of people.

Before such a power is afforded to a Secretary of State who may have little or no specialist expertise in pensions, it is only right that the Committee understands clearly how this power will be exercised and what safeguards will apply. The clause itself, however, tells us very little. It provides no indication of the process that will be followed, the criteria that will be applied or the protections that will be in place for members, employers and administering authorities. I therefore hope that the Minister can assist the Committee on a number of points.

First, on expertise and decision-making, pension scheme governance is highly complex and technical. What confidence can the Government offer that the Secretary of State is the appropriate decision-maker for imposing compulsory mergers, particularly in the absence of any requirement in the Bill to obtain independent expert pensions advice?

Secondly, on process, what precise procedural steps will be required before a compulsory merger can be ordered? Will there be a statutory consultation and, if so, with whom? Will affected scheme managers, administering authorities, employers and scheme members have a formal opportunity to make representations before a decision is taken?

Thirdly, on safeguards and accountability, what independent checks and balances will exist to ensure that the Secretary of State cannot act unilaterally? Will decisions be required to meet defined tests, such as necessity or proportionality, and to be supported by evidence? Will there be any right of review or challenge where a fund believes a compulsory merger is not in the best interests of its members?

Fourthly, on financial risk, given the scale of the assets involved, what assurances can the Government provide that members’ savings will not be exposed to undue risk or that decisions will not be influenced directly or indirectly by political or short-term considerations rather than long-term fiduciary interest?

Finally, on precedent, does the Minister accept that conferring such a broad enabling power sets an important precedent for ministerial intervention in pensions governance more widely? If so, how do the Government justify that approach, and why are the limits of this power left entirely to secondary legislation?

We ought to have answers to these questions before the conclusion and passing of the Bill. Clause 6 confers wide discretion in a highly technical and sensitive area, with potentially far-reaching consequences. It is therefore entirely appropriate for the Committee to press the Government to explain how this power will be exercised, what safeguards will be in place and how the interests of scheme members will be protected. I look forward to the Minister’s response.

[Lord Palmer of Childs Hill (LD)]

My Lords, as has been stated, this clause introduces compulsory mergers of Local Government Pension Scheme funds, and the word “compulsory” worries me. We on these Benches accept that consolidation can sometimes improve efficiency and governance, but compulsion—I emphasise this—is a serious step that demands strong justification and clear safeguards, as the noble Baroness, Lady Stedman-Scott, stated.

At present, the Bill establishes the power without clearly setting out the criteria, process or routes of challenge. That sequencing matters. Trustees, employers and members need confidence that mergers will occur only when there is compelling evidence of benefit to the people—that is, the pensioners themselves. We on these Benches are concerned that forced mergers, if poorly handled—and some may well be poorly handled—could undermine trust rather than strengthen it. Before endorsing compulsion, which we are asked to do, Parliament should understand how decisions will be made, how dissent will be treated and what protections exist if a merger proves detrimental.

At this stage, it is quite right that there should be probing as to what is behind all this and what will happen in all the various circumstances that need to be in place to protect members of the Local Government Pension Scheme. I wait to see further information as the Bill progresses.

[Baroness Noakes (Con)]

My Lords, I apologise for speaking after the Liberal Democrats—the noble Lord got up rather quickly.

[Lord Palmer of Childs Hill (LD)]

I apologise. I did not see you.

[Baroness Noakes (Con)]

I endorse everything that both speakers have said about understanding more about the use of this power. I want to go back to the Explanatory Notes. They say that Clause 6 amends Schedule 3, et cetera,

“to clarify that, in the case of the LGPS, the responsible authority’s powers also include the power to make regulations”.

That implies that the Government believe that this is a declaration of an existing power. If that is the case, can they explain why they feel it is necessary to put Clause 6 in this Bill? Can they also explain the history of mergers with the involvement of the regulatory authority and what problems, if any, have led to the need to insert this in Clause 6? As the noble Lords who have spoken said, it looks like a very draconian power to be taking and yet the Explanatory Notes imply that they already have the power. It would be useful to have some more background.

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[Baroness Altmann (Non-Afl)]

My Lords, I support Amendments 14 and 15; I thank the noble Baroness, Lady Stedman-Scott, for her explanation of the thinking behind them. I apologise to the noble Lord, Lord Davies, that on this occasion I find it difficult to agree with much of what he said.

I agree that these schemes have been a success. I do not see these amendments as suggesting that there is a massive failure, but I am frightened that we could be about to snatch defeat from the jaws of the victory that these schemes have so far been able to provide. It is vital that there is a cost and sustainability review, as well as a review of the actuarial valuation methodologies. I do not feel that this issue can be swept under the carpet; to some extent, there is, or has been, a desire to do just that.

Excessive prudence and hoarding of excess assets are not, in my opinion, good governance. At least part of the surplus belongs to the employer, who is the council tax payer. This series of amendments, and indeed the whole Bill, need to be approached with the view that defined benefit pension schemes are no longer a problem that needs solving. We had that mindset for so many years that it seems we cannot easily get away from it but, actually, these funds have turned into a national asset, which needs to be stewarded responsibly. It can help to deliver both good pensions and long-term support for the economy, if we just use the opportunity that is presenting itself now.

The LGPS has very much changed position, especially because the needs of local and national economies have also changed. Council tax should be used responsibly and not to keep putting money into pension funds that already have more than they need. The risk of non-payment of these pensions is extremely low anyway, but the risk of council failure has been rising. The same is true for some other employers that are contributing here, such as special schools, academies, care homes and housing associations; a number of authorities and groups that are really important to our national well-being have also been caught up in this situation.

I must thank Steve Simkins of Isio, who has been helping me to understand some of what is going on at the local authority level. I have found his insights extremely valuable. Although the noble Lord, Lord Davies, said that we had the 2013 review under the local authority regulations—I think he quoted LGPS Regulation 62. That is in place but, as the years have gone on, the review and its terms have been used as a smokescreen for super-prudence. I have something of a problem with the argument about stability, because we were not as worried when we thought there were massive deficits in schemes, but we do not seem to want to take even a temporary respite from the ongoing contributions, which actuaries say are not needed, when things have become better.

I support the comments made by the noble Baroness, Lady Stedman-Scott, about the need for these regulations. They are meant, as the noble Lord, Lord Davies, suggested, to help review contributions in the interim, but it is not clear what the definitions on which the review is based mean. The word “desirability” is so vague: desirable to whom? Even the word “stability” can be interpreted differently, depending on whether you are talking about stability immediately or over the long run. Does “long term cost efficiency” include the cost of holding too much money? Is that efficient? We also have “solvency”, of course; on what basis is that measured?

I have enormous sympathy with the noble Lord, Lord Davies, in imploring the Committee to have supreme confidence in the actuarial profession’s conclusions about these funds—I have to declare an interest in that my daughter is an actuary, although I stress not on the pension side. Of course, actuaries are a very professional, well-educated group, but the issue for me is not so much with the wording of the regulations but the mindset that is behind what is done with those valuations. The LGPS, the scheme advisory boards, the MHCLG and even the LGPS officers, advisers and investment managers themselves seem to want to interpret everything in the most negative way, so I think that the noble Baroness has done the Committee a service in raising these issues.

We will talk more about this in the next group, but I urge the Minister to consider carefully, in the context that councils are running out of money and cannot afford basic services, that 20% to 25% of council tax goes on employer pension contributions into schemes that do not, as I say, seem to need the money. Could we be stewarding this national resource, and even the local authority budgets, far better and use the opportunity of the pension success to drive better growth and better local well-being?

[Lord Palmer of Childs Hill (LD)]

My Lords, I must first remind myself to declare that I am a member of the Local Government Pension Scheme: I could not fail to be, having been 28 years on the London Borough of Barnet Council, but I tend to forget about it because it is quite a while ago. A payment does come monthly into my bank account, so I must declare that I am a recipient. I also served on the pensions committee of the London Borough of Barnet, so I have some knowledge of the things that the noble Lord, Lord Davies, has been very eloquent about.

These amendments propose reviews of the Local Government Pension Scheme, and I think we have to get back to exactly what these amendments are asking for, which is sustainability and actuarial practice. We on my Benches support both, in principle. The Local Government Pension Scheme is a long-term, open scheme with unique characteristics, and pressures on admitted bodies, including housing associations, merit careful examination.

The noble Lord, Lord Davies, spoke eloquently about the profession of actuaries. I have always found that actuaries do not have a unified view. There are different actuaries and different views, and as a chartered accountant I have always thought they were impressively prudent with what they said the funds needed to be protected against.

Similarly, actuarial practices such as desirability, stability and solvency are not always applied consistently, despite our applause for actuaries as a profession. Greater clarity would help employers plan and would reduce disputes. Reviews, which is what these amendments ask for, are not admissions of failure; they are tools of good governance. We on these Benches therefore see these amendments as constructive and not critical.

The noble Lord, Lord Fuller, spoke very eloquently about stabilisation and the noble Baroness, Lady Altmann, talked about cost and stabilisation review. Excess prudence, or super-prudence, is not sensible, and it is so easy to be prudent as the easy way out. There is an argument for temporary respite. All these come into the question of review, which is what these two amendments ask for. Our question is whether the Government can accept the value of structured, evidence-based review in strengthening confidence in the Local Government Pension Scheme. Review is not a question of failure; it is a question of prudence, which I would have thought actuaries would be in favour of.

[Lord Katz (Lab)]

My Lords, this has been another interesting and wide-ranging debate, and I am sorry to see that the accord that we had on Monday— the horseshoe accord, I am going to call it—between my noble friend Lord Davies and the noble Lord, Lord Fuller, has broken down. Sadly, in my experience these things do not last that long.

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[Lord Palmer of Childs Hill (LD)]

My Lords, I support these amendments because I believe that transparency is good. I will need to address some of the things that the noble Lord, Lord Davies, said. He is right from an actuarial point of view, obviously. He said the decision is made by the council; in fact, it is made by the management committee of that council. The management committee of most councils will consist of councillors who are neither actuaries nor particularly great financial wizards. What happens in practice is that those people on the council’s management committee that is deciding take the advice of its pensions advisers, stockbrokers and actuaries. It happens on that basis. Do they understand it? My general view is that they are swayed by the people who make the arguments to that committee.

So this group of amendments addresses transparency, benchmarking and surplus. To most people, these are technical matters and ones on which the noble Lord, Lord Davies, speaks with great expertise from an actuarial point of view. But the impact on employer contributions and public services is real. Where valuations are materially more prudent than market benchmarks, we need to understand why.

My noble friend Lord Thurso talked about risk appetite. Most local authority pension committees will not have a great deal of appetite for risk. Their idea is that they are custodians of their employees’ pensions and they will naturally fall on the opposite side of taking risk. That is probably quite right. These amendments are a step in the right direction: they are a clearer explanation of assumptions and benchmarks, which strengthens the local government pension schemes by improving accountability and understanding.

Our question is whether the Government and the Minister agree that transparency is a safeguard and not a threat. This is what the amendments talk about—transparency. We need to make it as transparent to the management committees of these pension funds as it can be. That is what these amendments try to do: they would bring this on to a more generalised basis, not just picking the ones that do well in the Orkneys or wherever, but ones that maybe need guidance. Therefore, these Benches support these amendments, and I hope that they see some light at the end of the tunnel.

[Lord Katz (Lab)]

My Lords, this has been another interesting and wide-ranging debate. I am pleased to see that the horseshoe accord has, to some small measure, broken out again. I must say that I am not as pleased to see the conversion—maybe I am being unfair in characterising it as a Damascene conversion—of the noble Lord, Lord Fuller, and other Members opposite into the prudence of having well-funded local government to provide local services, after the underfunding of local authorities for a fair amount of time. Would that that sentiment had been shown by the Benches opposite when they were on our side of the Committee, but we are where we are.

These amendments show a clear desire to provide greater transparency in the triennial valuation and contributions rate-setting process. I agree it is important that all scheme employers understand how their contribution rates have been set, and members need to have confidence in the long-term sustainability of the fund.

These amendments also show a keen interest in the funding level of the Local Government Pension Scheme and the balance that administering authorities must strike between the long-term sustainability of the fund and affordability to its employers. As a public sector scheme, it is right that we are mindful of the costs to the taxpayer of funding the scheme.

I will address up front why the surplus extraction measures in Clauses 9 and 10 do not apply to the LGPS, to avoid confusion. The LGPS already has a triennial valuation process where contribution rates for employers are set. This is effectively a point where surplus extraction can take place, as this is where contribution rates can be reduced in response to an improvement in the funding level. As we will come on to later, there is also an interim contribution review process for employers who find themselves in difficulty. Therefore, an additional surplus extraction process is not required.

Furthermore, I urge caution in viewing surpluses in the LGPS as a potential windfall or as a means of managing broader revenue pressures for scheme employers. As in all defined benefit schemes, surpluses are maintained to absorb future shocks, manage demographic risk and ensure that promises made to members are kept. Poor decision-making can now lead to higher costs for future generations of taxpayers.

For context, the 2025 valuation will conclude in a few weeks, as we have discussed, with employer contribution rates set for April 2026 onwards. Following this, the Government Actuary’s Department, under Section 13 of the Public Service Pensions Act 2013, will undertake a review for the Secretary of State of all fund valuations, on whether compliance, consistency, solvency and long-term cost efficiency in the scheme has been achieved. Under usual timeframes, the report will be published in mid-2027.

Although I appreciate that the Committee is concerned about rising surpluses in the scheme, it surely cannot be right that we make amendments that would have a material impact on future valuations without having a full review of the outcomes of the 2025 valuation. It is anticipated that there will be reductions in contribution rates for many employers from April, and we need to take account of how the current system has coped with the significant changes in market conditions since that 2022 valuation—we discussed that on both this and the previous group—before making changes to the valuation process.

The LGPS is a locally administered and managed scheme. It is administering authorities that are responsible for managing their surpluses through employer contribution rate changes, and for working with their actuaries to set appropriate assumptions as part of the valuation. Authorities are required under government regulations to provide valuation reports to employers to support them in their longer-term financial planning. So we must consider whether it is right for the Government to exert a more significant level of influence over the setting of contribution rates through these amendments, and whether this is compatible with local accountability.

It is right, in a locally managed scheme, that funds are able to set their own approaches to stability and prudence, reflecting both the needs of employers in understanding their medium-term financial obligations and the different risk profiles of their investments. The balance of these is key to delivering the intergenerational fairness mentioned by noble Lords opposite, particularly the noble Viscount, Lord Younger—and indeed we all want to see that.

On transparency, revised statutory guidance on the funding strategy statement, which all LGPS funds must publish, was issued by the scheme advisory board on behalf of MHCLG in January 2025. Under this guidance, administering authorities should consult all employers in the fund on their funding strategy statement, which should outline how administering authorities will manage surpluses and deficits, outline the approach to contribution rate stability, and summarise the main actuarial assumptions used at the valuation.

Amendment 16 would require the Secretary of State to set a statutory funding objective for LGPS funds, including considerations for administering authorities, setting their funding strategy and contribution rates. There is already detailed guidance on how funds should manage surpluses and deficits in their funding strategy, but, as locally managed schemes, it should be for administering authorities to consider how to strike the right balance in setting the contribution rates, with appropriate considerations of prudence and the long-term sustainability of the scheme and contributions. Furthermore, a funding objective would still require a degree of interpretation and so would not provide the clarity that the noble Lord seeks to achieve with his amendment.

In 2020, the Supreme Court found that LGPS money is not, in fact, public money, but that it belongs to its members, which further justifies why a statutory funding objective is not appropriate for the scheme.

Amendment 17 would require fund valuations to be benchmarked against insurer and gilt-based pricing, with a report laid before the relevant local authority. The triennial valuation and contribution rates-setting process is already a robust and collaborative process between administering authorities, actuaries and employers. Many authorities already follow best practice in consulting scheme employers alongside the contribution rate-setting process. This gives employers the opportunity to challenge contribution rates and consider whether they are sufficiently stable, or whether excessive prudence is built in.

Statutory guidance already sets out that funds should publish the actuarial assumptions used as part of the funding strategy statement. The noble Baroness, Lady Altmann, referenced the role of the Financial Reporting Council in the valuation. The valuation reports, which are publicly available, will include Financial Reporting Council compliance statements that technical actuarial standards have been complied with. In addition, I have already raised the Section 13 report by the GAD, which reviews the fund-level actuarial valuations. As part of the review into the 2022 valuation report, for example, when assessing consistency, there was a review of assumptions, including the discount rate.

Finally, this amendment points to a perceived excessive risk aversion undertaken by the LGPS. This is not an accurate characterisation. In fact, around three-quarters of LGPS assets are invested in return-seeking assets, vastly outweighing the equivalent figures in private schemes, which are heavily geared towards matching assets.

Amendment 18 would require administering authorities to publish and justify their approach to the treatment of surpluses over 120%. First, we must consider if this is the level that we would wish to set in the context of the LGPS. Elsewhere in defined benefit schemes, the Government are considering the funding threshold for surplus release, and there has already been consideration of what this would be. But we must remember that the valuation process already provides a route to return surplus to employers, which allows for changes every three years, whether or not a threshold—whatever it is—has been met.

Furthermore, each valuation is prepared on a local basis, meaning that the funding level will depend on the discount rate set. The discount rate converts the value of future benefits to a current value so it can be compared to the current value of assets; it is used to determine the employer contribution rate required to pay future benefits. It is based on the assumed future returns of the individual fund’s investments, taking into account the portfolio of assets held by the fund, the demographic profile of its members and its attitudes to risk. That means that a funding level of 120% in one fund will simply not be comparable to that of another if the discount rates applied are significantly different.

I think that the Committee will surely agree that the purpose of a buffer is to provide a surplus in well-funded times and guard against a fall into deficit in more challenging times. As a locally managed scheme, it is for the funds, not for the Government, to decide what the right level of surplus is. Introducing these additional reviews and requirements would risk undermining the valuation process and the locally managed nature of the scheme.

On Amendment 19, we had an interesting discussion on transparency—certainly transparency and accessibility is something that we should all seek. I appreciated the discussion between my noble friend Lord Davies and the noble Baronesses, Lady Altmann and Lady Noakes, on the accessibility of the actuarial statements. Maybe I would say this, but I thought that my noble friend put up a good defence of the professional standards that actuarial firms set themselves with regard to matters of accessibility.

I appreciate that the intent of Amendment 19 is to increase the transparency of actuarial valuations for all scheme employers and for members of the public. In addition to the requirements that I have already mentioned, regulations also require the administering authority to publish and send copies of any valuation, report or certificate made under Regulation 62, or Regulation 64, to all employers. I do not recognise that as limited transparency, but I concede that there is scope for greater visibility—and that is something that we should always seek to pursue. While there is scope to look at whether these publications could be made easier to understand for employers, that should be considered in the round—I suggest following the conclusion of the 2025 valuation.

The noble Viscount, Lord Younger, asked me to comment on his example of valuations increasing despite surpluses, and I would say that there is a robust valuation process in place into which employers feed. We must wait for completion of the scheme valuation and its formal result—but if this is the case as set out by the noble Viscount, the Government Actuary’s Department will review the results in the valuation under regulations in Section 13.

The noble Lord, Lord Fuller, asked about funds not using a discount rate that is more prudent than a gilt basis. I have already talked about the wider inaccurate characterisation of excessive risk aversion, but at this point I add that the LGPS is a funded scheme with diversified assets and its discount rates are set by fund actuaries on a scheme-specific, prudent basis that reflects long-term expected returns. The valuations are reviewed nationally by the GAD on compliance, solvency and long-term cost efficiency. Without the results of the 2025 valuation or the Section 13 review, we cannot say for certain what the current approach is, taken across all funds.

Pension Schemes Bill

Lord Palmer of Childs Hill Excerpts

Committee stage
Monday 19th January 2026 Grand Committee

[Baroness Noakes (Con)]

My Lords, I will say a little more in our debate on the next group about how surpluses should be used, but we must recognise that employers in defined benefit schemes underwrite defined benefit scheme finances; they are the ones who have been putting in very large sums of money to keep these schemes going for the past 20-odd years. It is only right that we should recognise the interest that employers have in taking money that is no longer required within a scheme.

We have had so many years of deficits in pension schemes that we have rather forgotten that this was like an everyday happening in the pensions world, if you go back to the 1990s, when surpluses arose. Indeed, pension schemes were not allowed to keep pension surpluses; there were HMRC rules which made that rather difficult to do. These were perfectly ordinary transactions in the pensions world which we have just forgotten about because of the deficits that have existed for the last 20 or 30 years, which employers—not employees—have had to bear the burden of.

On the amendments in the name of the noble Lord, Lord Davies, I understand the technical point about removing assets rather than surplus, but surplus is the language that has always been used in the context of pension schemes; it is in the 1995 Act. The noble Lord’s amendments amend only this Act; as I understand it, they do not go on and amend the earlier Act. It is just language that has been used for a long period; I think people know what it means, and it will be very confusing at this stage to change the language.

[Lord Palmer of Childs Hill (LD)]

My Lords, I thank the noble Lord, Lord Davies, for putting these amendments down and speaking in detail about them. We also heard good words from the noble Lord, Lord Kirkhope, the noble Viscount, Lord Thurso, and the noble Baroness, Lady Noakes. I almost thought, “Is there any point in getting up and speaking?” but I am a politician.

This group goes to first principles. What is a defined benefits pension surplus and what is it for? For us, DB surplus is not a windfall or an accident, as I think others have said. It is a result of long-term assumptions, member contributions, employer funding decisions and investment outcomes—all those—but above all, it exists within a framework of promises made to members in return for deferred pay. We are therefore concerned about renaming—we keep on coming back to this—“surplus” as simply “assets” available for redistribution.

Language matters here because it shapes both legal interpretation and member confidence. Treating surpluses as inherently extractable risks weakening the fundamental bargain that underpins DB provision. Our position is not that surplus should never be accessed, but that it should be considered only after members’ reasonable expectations have been fully protected. That includes confidence in benefits security, protection against inflation erosion, and trust and accrued rights not being retrospectively interpreted. I have always thought that with DB pensions you need prudence. How far do prudence and good governance go?

Finally, the question for Ministers is whether the Bill maintains the principle that DB schemes exist first and foremost to deliver promised benefits or whether it marks a shift towards viewing schemes as financial reservoirs once minimum funding tests are met. In that case, one has to think, “What is the minimum for the funding tests?” We shall come on to that in an amendment that the noble Lord, Lord Sikka, has put down later in the Bill on where companies fail. It is a question of when those surpluses are available, if they are ever available.

[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.

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I take the point made by the noble Baroness, Lady Noakes, about history, but the whole point is that we can rewrite history. We do that here all the time; it is called progress. In fact, I have quite a long speech on the point of principle, which I am already drafting, for my Amendment 203. The world has changed, and fairness demands that something is done for the pre-1997 pensioners. The two proposals of the noble Lord, Lord Palmer, are a very small step towards achieving the justice that the people concerned deserve.

[Lord Palmer of Childs Hill (LD)]

This seems like a good moment to come in. I first ask the Minister: do the Government agree that a responsible use of surpluses should strengthen confidence in DB schemes and not leave members feeling that prudence has benefited everybody but them? In this, I disagree with the noble Lord, Lord Fuller, because people do feel aggrieved.

I have three amendments here. Amendment 32 is designed to ensure that regulations take account of the particular circumstances of occupational pension schemes established before the Pensions Act 1995. Members of pre-1997 schemes, so often referred to in this debate, are often in a different position to those in later schemes. These schemes were designed under a different legal and regulatory framework. Current legislation does not always reflect those historical realities, creating unintended iniquities.

Amendment 32 would require regulations under Clause 9 to explicitly consider—that is all—these older schemes. It would allow such schemes, with appropriate regulatory oversight, to offer discretionary indexation where funding allowed, so it would provide flexibility while ensuring that safeguards were in place. It would give trustees the ability to improve outcomes for members in a fair and responsible way, and it would help to address the long-standing issue of members missing out on indexation simply because of their scheme’s pre-1997 status. It would also ensure that members could share in scheme strength where resources permitted. Obviously, safeguards are needed, and Amendment 32 would make it clear that discretionary increases would be possible only where schemes were well funded. Oversight by regulators ensures that employer interests and member protections remain balanced.

My Amendment 41 is about advice. When you are as knowledgeable as the noble Lord, Lord Davies, you do not need the advice, but many pensioners are missing it. This amendment would allow a proportion of pension scheme surplus to be allocated towards funding free—

[Lord Davies of Brixton (Lab)]

The amendment talks about surpluses, so it is talking specifically about defined benefit schemes. It is not talking about DC schemes because such schemes do not have surpluses. I just want to be clear.

[Lord Palmer of Childs Hill (LD)]

I thank the noble Lord; it is just that impartial pension advice for members is not always available to everybody. Many savers struggle to navigate pension choices, whether around a consolidation investment strategy or retirement income. Without proper advice, members risk making poor financial decisions that could damage their long-term security. If you are in the business, you have to take the good with the bad, but we would like to give members a bit of advice if the money is available. Free impartial advice is essential to levelling the playing field.

Surpluses in pension schemes should not sit idle or be seen simply as windfall funds. Redirecting a small—I stress “small”—proportion to fund member advice would ensure that surpluses are used in a way that benefits members directly. Amendment 32 would not mandate a fixed share; it would simply give the Secretary of State powers to determine what proportion may be used. This would, I hope, create flexibility and safeguards so that the balance between scheme health and member benefit can be properly managed. Further advice from surpluses reduces the need for members to pay out of pocket and it builds trust that schemes are actively supporting member outcomes beyond the pension pot itself.

Amendment 44, to which my noble friend Lord Thurso referred, would insert a new clause requiring the Secretary of State to publish

“within 12 months … a report on whether the fiduciary duties of trustees of occupational pension schemes should be amended to permit discretionary indexation of pre-1997 accrued rights, where scheme funding allows”.

It aims to explore options for improving outcomes for members of older pension schemes. I maintain that this amendment is needed because many pre-1997 schemes were established before modern indexation rules. Trustees’ current fiduciary duties may limit their ability to avoid discretionary increases, which is what this amendment is about. Members of these schemes may be missing out on pension increases that could be sustainable and beneficial. I will not go on about what the report would do, but there would be many benefits to this new clause. It would provide an evidence-based assessment of whether discretionary indexation can be applied safely; support trustees in making informed decisions for pre-1997 scheme members; and balance members’ interests with financial prudence and regulatory safeguards.

The amendments in this group are clearly going to progress on to Report in some way. Sometime between now and then, we are going to have to try to amalgamate these schemes and take the best bits out of them in order to get, on Report, a final amendment that might have a chance of persuading the Government to take action on these points. Many of the amendments in this group—indeed, all of them—follow the same line, but there needs to be some discipline in trying to get the best out of them all into a final amendment on Report.

[Viscount Younger of Leckie (Con)]

My Lords, I thank the noble Baroness, Lady Altmann, and the noble Lord, Lord Palmer, for their amendments in this group. I also thank other noble Lords for all their other contributions in Committee so far this afternoon. Our debate on this group has stimulated a most valuable discussion. Of course, I look forward to the Minister’s responses to the points that have been raised.

I wish to start off by saying that I thought it was helpful that the noble Baroness, Lady Altmann, steered the Committee—my words, not hers—towards a focus on scheme members. The debate went a lot beyond that, but I just wanted to make that point at the outset. I wish also to take this opportunity to set out our stance on indexation, as well as some of the related questions that we for the Opposition have for the Government on this point.

As the noble Baroness, Lady Bowles, said, these amendments raise understandable concerns about fairness, inflation and the use of defined benefit surpluses. But our core line is simple: mandating how trustees and employers use DB surpluses would be overly prescriptive and risks being actively anti-business. Many employers are already using surpluses constructively, improving DC provision for younger workers, supporting intergenerational fairness, strengthening scheme security through contingent assets, SPVs or insurance-backed arrangements, or reducing long-term risk in ways that benefit members as well as sponsors. Employers have also borne DB deficit risk for many years, as we have heard a bit about this afternoon. If they carried the risk in the bad times, it is reasonable that they can share in the benefits in the good times, provided that decisions are taken jointly with trustees.

I will explain this through a simple analogy—I say at the outset that it will not be up to the standard of the buckets analogy utilised previously in Committee by the noble Baroness, Lady Bowles, but here we are. The employer and members walk into the casino together. The bets are placed and the investment strategy, funding assumptions and longevity risk are collective decisions overseen by trustees. If the bet goes wrong, the employer must cover the losses, often over many years, through additional contributions and balance sheet strain. If the bet goes right, however, some argue that the employer should be excluded from any upside and that all gains must automatically be distributed to members.

That is not, we believe, how risk sharing works. In any rational system, the party that underwrites the losses must surely be allowed to share in the gains—I know there are other arguments, but I believe this was the one posed by my noble friend Lady Noakes—otherwise, incentives are distorted, future participation is discouraged and employers become less willing to sponsor schemes at all. The fair outcome is that neither the employer nor the members take everything and that surplus is discussed and allocated jointly by trustees and employers in a way that balances member security, scheme sustainability and the long-term health of the sponsoring employer. I think this was the central argument of the noble Viscount, Lord Thurso, and, in a different way, my noble friend Lord Fuller. Legislation should support that partnership, not override it.

My noble friend Lord Willets made an interesting point. He asked whether it is fair that, in DB schemes, current employees often contribute to enhancing or rescuing the surplus position of pension schemes, making up for past mistakes—or deficits, perhaps—and the potential consequence of that linking to lower remuneration for those current employees. I add one more thing, which is probably a bit unfair because it is slightly hypothetical: if that current employee, having perhaps been paid less, is then made redundant, that is a double whammy for them. The question is whether the surplus should be used for helping current employees or giving them a better deal, as well as, or instead of, looking to help the pre-1997 members. That is the way I look at it.

Against that backdrop, amendments that would make benefit uplifts—whether pre-1997 indexation or lump sum enhancements—a statutory condition of surplus extraction raise real concerns. Automatic uplift would ignore wider economic impacts, including higher employer costs; increased insolvency risk, ultimately borne by the PPF; knock-on effects on wages, investment and employment; and potentially higher PPF levies.

For PPF schemes, mandatory uplift is manageable because the employer covenant has gone and Parliament controls the compensation framework. Imposing similar requirements on live schemes risks destabilising otherwise healthy employers. Uplift should therefore be an option and not an obligation. That said, focusing on choice does not mean ignoring power imbalances. In some schemes, there is genuine deadlock. Trustees may be reluctant to deploy surplus for fear of sponsor reaction or member backlash, so instead sit on it and de-risk further. That may be a rational defensive response, but it is also a deeply inefficient outcome. The Government should be looking at how to enable better use of surplus by agreement, rather than mandating outcomes.

My questions to the Minister are as follows. How do the Government intend to preserve flexibility while avoiding blunt compulsion? How will they support trustee-employer partnership rather than hardwiring outcomes into legislation? What consideration has been given to mechanisms for breaking deadlock—including overprudence, if that is a term that can be used—so that surplus can be used productively rather than simply locked away?

To conclude, these amendments raise important issues. Our concern is not with the objectives but with the method. Choice, partnership and proportionality should remain the guiding principles. I look forward to the responses from the Minister.

--- Later in debate ---

Moved by

[Lord Palmer of Childs Hill]

45: After Clause 10, insert the following new Clause—
“Independent review into state deduction in defined benefit pension schemes(1) The Secretary of State must, within three months of the day on which this Act is passed, commission an independent review into the application and impact of state deduction mechanisms in occupational defined benefit pension schemes for banks.(2) The Secretary of State must by regulations set out the terms of reference for the review, including the bank or banks to be investigated.(3) The regulations in subsection (2) must make provision for the terms of reference to include —(a) the origin, rationale and implementation of state deduction in bank pension schemes,(b) the clarity and adequacy of member communications regarding state deduction from inception to present,(c) the differential impact of state deduction on pensioners with varying salary histories, including an assessment of any disproportionate effects on—(i) lower-paid staff, and(ii) women, (d) comparisons with other occupational pension schemes in the banking and public sectors, and(e) the legal, administrative, and financial feasibility of modifying or removing state deduction provisions, including potential mechanisms for redress.(4) The Secretary of State must ensure that the person or body appointed to conduct the review—(a) is independent of the banks investigated and its associated pension schemes,(b) possesses relevant expertise in pensions law, occupational pension scheme administration, and equality and fairness in retirement income, and(c) undertakes appropriate consultation with—(i) affected scheme members,(ii) employee representatives,(iii) pension experts, and(iv) stakeholder organisations.(5) The person or body conducting the review must—(a) submit a report on its findings to the Secretary of State within 12 months of the date the review is commissioned, and(b) the Secretary of State must lay a copy of the report before Parliament and publish the report in full.(6) Within three months of laying the report before Parliament, the Secretary of State must publish a written response setting out the Government’s proposed actions, if any, in response to the report’s findings and recommendations.(7) Regulations under this section are subject to the negative procedure.(8) For the purposes of this section—“state deduction” means any provision within a defined benefit occupational pension scheme that reduces pension entitlements by reference to the member reaching state pension age or by reference to any state pension entitlement;“defined benefit pension scheme” has the meaning given in section 181 of the Pension Schemes Act 1993.”Member’s explanatory statement
This new clause would require the Secretary of State to commission an independent review into clawback provisions in occupational defined benefit pension schemes, for example, the Midland Bank staff pension scheme.

[Lord Palmer of Childs Hill (LD)]

This proposed new clause would require the Secretary of State to commission an independent review into the application and impact of state deduction mechanisms in occupational defined benefit schemes. It is a very narrow request that focuses specifically on clawback provisions in the Midland Bank staff pension scheme.

[The Deputy Chairman of Committees (Baroness Morgan of Drefelin) (Lab)]

My Lords, there is a Division in the House—we all knew it was coming—so we need to adjourn. If it is acceptable to the Committee, we will adjourn for 20 minutes because there is, I believe, a number of Divisions coming.

--- Later in debate ---

[Lord Palmer of Childs Hill (LD)]

My Lords, I will try to make this quick. Proposed new clause in Amendment 45 requires the Secretary of State to commission an independent review into the application and impact of state deduction mechanisms in occupational defined benefit pension schemes. It focuses on the clawback provisions, particularly in the Midland Bank staff pension scheme and associated legacy arrangements.

Why is this review needed? State deduction provisions can reduce members’ pension entitlements, sometimes in ways that are complex or unclear. There are concerns about fairness and transparency and a disproportionate impact, particularly on lower paid staff and women. It ensures members, regulators and Parliament have clarity about the origin, rationale and effects of these provisions.

The review will examine the history and rationale for state deduction in a Midland Bank staff pension scheme and assess clarity. It will be conducted by a person or body independent of HSBC and associated schemes. We will also try to ensure that it must consult affected scheme members, employee representatives, pension experts and stakeholder organisations. I beg to move.

[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.

Amendment 45 withdrawn.

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If, however, the employer was not in robust financial health and questions were raised about the financial strength of the employer, that contingent liability would almost certainly be treated by bankers—and probably trade creditors as well—as an actual liability in the calculations that are done on decisions being made on advancing or maintaining lending or advancing trade credit. That would then amplify the problems for a company that was perhaps struggling financially, which would in turn increase the possibility that the employer would be tipped into insolvency. This amendment is potentially very risky, and I hope that the Government will not accept it.

[Lord Palmer of Childs Hill (LD)]

This amendment raises a very important point. The question, though, is when the surpluses could be paid out. If the company seems to be in a robust way, there is no reason why the pension fund should be overprotected. While everything in the garden is lovely, there is no reason to give them a 10-year position when things may have deteriorated in subsequent years. So, I agree in principle with the amendment of the noble Lord, Lord Sikka, but 10 years is far too long, because in those 10 years, all sorts of things can happen. If it was five years or fewer, it would be very good, but while everything in the garden—in the company—is lovely, the pension fund should not be overprotected for the extent of 10 years.

[Baroness Altmann (Non-Afl)]

My Lords, I have enormous sympathy with the thoughts behind the amendment of the noble Lord, Lord Sikka. However, I share the concerns expressed by the noble Baroness, Lady Noakes, in that it is not clear how that would work, because this would then need to be a contingent payment or some kind of conditional payment which can be recouped, and that would impact creditors or debt holders of the company as well. Does the noble Lord feel that if, as a consequence of the surplus payment, members also got enhanced benefits, that would in some ways compensate for the future eventuality of what he is concerned about?

Finally, in the days before we had a Pension Protection Fund, I was very much in favour of increasing the status of the unsecured creditor position of a pension scheme. But in the current environment, where there is a Pension Protection Fund, and where the Bill will be improving the protections provided by it, it is much less important to increase the status on insolvency of the pension scheme itself than it would have been in past times. I certainly agree with the noble Lord, Lord Palmer, that if there were to be any such provision, it should be a lot less than 10 years.

Pension Schemes Bill

Lord Palmer of Childs Hill Excerpts

Committee stage
Thursday 22nd January 2026 Grand Committee

[Baroness Coffey (Con)]

This group of amendments is quite interesting in starting to sketch out what is important in the value-for-money approach that is being adopted through the Bill. I did not know when the noble Lord, Lord Palmer of Childs Hill, would speak to Amendment 49 and I will be interested to hear what he has to say on this, because the only other form of occupational pension is, in effect, the defined benefit, where you know what you are getting. I was a bit surprised that he felt that that would need to go further, because that is a direct relationship between somebody and their employer. Nevertheless, I am sure he will explain further.

The noble Baroness, Lady Bowles of Berkhamsted, has tabled Amendments 55 and 56 to Clause 12, which are sensible, but one thing that concerns me at the start of that clause is the word “may”. We should be beyond that at this stage, which is why I also support my noble friends on the Front Bench in opposing Clause 13 standing part of the Bill. There are just too many ifs, buts and maybes, but when it comes to Clause 13 there is nothing at all. It is just a blank cheque for the future. I am conscious that things can vary over time, but we should be in a position where we are getting some clarity on what will be in these value-for-money assessments so that people can make choices. We should be getting that clarity now. If necessary, we can put down regulations for affirmative procedures but, candidly, I do not think it is good enough that we have this sort of approach to defining what is there for the future.

I say to the Minister that I appreciate that this is a real step forward and I welcome that. People put their money in, they are not exactly sure what return they are getting and they might look every now and again at where it is coming out. I appreciate that there is a whole journey to go on in pensions education, as well as for the trustees, in terms of what is really happening with their advisers who continue to do low-risk, low-reward. I encourage the Minister, however, to come back on Report with a much stronger sketching out of what will be in these assessments, as required by Clause 13. For example, instead of just having the word “may”, have some “must” in there and then open up the power later to adjust as necessary. It is also valuable to be able to repeal.

Amendment 74 concerns the “Duty to formalise the Value for Money framework”; I know that my Front Bench will speak to that shortly. It is a useful exercise to check whether it is working. There are other amendments which basically make comparisons with other pension providers. That gets trickier if it is done at such a detailed level because, again, people might want some basic information on what is happening with their money. To pick at random, they might want their money with Standard Life instead of Scottish Life; if there is some variation, they might want to make a change. It is those sorts of things that I encourage the Minister to have more detail on by the time we reach Report.

[Lord Palmer of Childs Hill (LD)]

My Lords, as has been expressed, this group establishes the foundation of the value-for-money framework. We welcome the ambition to improve outcomes for savers. However, the effectiveness of value for money will depend on how it is defined, measured and implemented, and I welcome the comments from the noble Baronesses, Lady Bowles, Lady Altmann and Lady Kramer, which elaborated on these points.

I shall concentrate on Amendments 49 and 54 and I hope I can persuade the noble Baroness, Lady Coffey, that they are of value. These amendments will extend the scope of the Bill’s value-for-money provisions. They ensure that they apply not only to defined contribution schemes but defined benefit occupational pension schemes as well.

The arrangements make it clear that regulations can make different provision for different types of scheme. Critically, however, all schemes must be covered by the value-for-money assessment, with a proper value-for-money rating. Members of DB schemes deserve the same transparency and assurance about value for money as members of DC schemes. DB schemes still represent a significant part of the pensions landscape. Excluding them risks creating an uneven playing field and less scrutiny where it is still needed.

A single, consistent framework across occupational pensions improves comparability, avoids regulatory gaps and ensures that all savers benefit from the same standards of accountability. The two amendments in my name would ensure that the Bill delivers on its promise of value for money across all pension schemes. The measure is simple: every saver in every scheme, whatever its type, deserves value for money. Other noble Lords have expressed this in detail.

The noble Baroness, Lady Altmann, spoke about pensions jargon. We are here in a very rarefied atmosphere, where people have some knowledge—I have less than many in the Room—of what pensions are about and what phrases such as “default pensions” mean. We need to make it clear to people who have no interest in pensions other than receiving a cheque at the end of the month at a certain age what it all means. Some people need to be clear about the choices they make, and we need to do as much as we can. These amendments, both those that have been spoken to already and the two in my name, seek to protect people’s interests.

[Baroness Stedman-Scott (Con)]

My Lords, we come again to a varied group. I shall focus my remarks on the amendments in my name and that of my noble friend Lord Younger of Leckie. I welcome the contributions from other noble Lords and I look forward to the Minister’s response. We have a few amendments in this group: Amendments 50, 51, 52, 53, 57 and 74, and the Clause 13 do not stand part proposition.

Before I turn to the amendments in my name and that of my noble friend Lord Younger of Leckie, I will say a few words about the value-for-money framework that sits at the heart of the Bill. The introduction of a value-for-money framework has the potential to be genuinely transformative for workplace pensions if it is designed and implemented well. We support the principle of value for money. However, much of what this legislation seeks to achieve will stand or fall on how the framework is designed, applied and enforced.

As drafted, the provisions are relatively skeletal, despite the pivotal role that value for money is expected to play. If value for money is to drive real improvement rather than box ticking, it must be transparent in its methodology, robust in its metrics and genuinely comparable across schemes. Cost alone cannot be the determining factor. A scheme that is cheap but delivers persistently weak net returns does not represent good value for money for savers. Comparability will be key. Without clear, standardised metrics, there is a risk that value for money simply reinforces price-chasing behaviour rather than improving outcomes. My amendments are therefore intended not to oppose the concept of value for money but to strengthen it, to ensure that it is implemented in a way that improves saver outcomes, respects fiduciary duty and avoids unintended consequences.

I turn to the amendments in more detail. Amendments 50 to 53 in my name and that of my noble friend Lord Younger of Leckie, and the noble Baroness, Lady Bowles of Berkhamsted in the case of Amendment 53, are probing amendments that go to the heart of whether the value-for-money framework established by Clause 11 will operate as a genuinely effective tool for improving saver outcomes.

Clause 11 creates a very broad enabling power. It allows for the creation of a value-for-money framework, but is largely silent on what value for money should actually consist of. Given the centrality of value for money to the Bill as a whole, it is important to test the Government’s intentions on the minimum elements that will underpin the framework.

Amendment 50 would require value-for-money regulations to include publication of a fees-to-returns ratio. The purpose here is straightforward: cost on its own is not value. As I have said, a scheme that is cheap but delivers persistently weak net returns cannot sensibly be said to offer good value to members. If value for money is to be outcome-focused, it must show what savers are receiving relative to what they are paying, rather than allowing headline charges to dominate decision-making.

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[Baroness Coffey (Con)]

My Lords, this is an interesting group of amendments. My noble friend has explained the importance of clarity in who decides whether something is fully delivering. I want to ask about the different assessments being made at this point. We are now, effectively, on Clause 15 onwards. We have the ratings coming through. My noble friends on the Front Bench will explain why they do not agree with certain elements. There is merit, however, in trying to work out whether something is taking a nosedive and whether it is it fixable, but we need to be more specific about a reasonable period, and then a prescribed number of VFM periods needs to be put in the Bill, which it is not at the moment.

Thinking through what has been suggested, I am trying to understand how this will work. Clause 13, which we have discussed briefly, has a certain amount of potential calculations. We then have the trustees doing their own assessment, and then we jump forward to Clause 18 and the Pensions Regulator may check. This is all feeling quite random. Normally when we do ratings, the CQC or Ofsted make that judgment, so I am trying to understand how this will work in practice. Are the guidelines going to be fixed—for example, the average or the benchmark across all pension schemes is this, or the FTSE 100 index has changed this much, or the costs are this percentage? It would be helpful to start to get a proper pitch. I appreciate that the consultation may have gone out, but there must be thinking in the Government’s mind, not just the regulator’s, on what “good” looks like. There are risks, as identified by my noble friends, that we may be overburdening to the point that the minutiae become an industry in their own right. I am surprised to see the penalties put in primary legislation, which is unusual nowadays, although I agree that we need a better sense of how that compliance element, as set out in Clause 18, will work alongside the other amendments. My noble friend is right to say that we need to keep this straightforward and simple for people to be able to understand.

[Lord Palmer of Childs Hill (LD)]

These are obviously probing amendments. They are all to do with the jargon: if we are arguing about the jargon, how much more confused will the normal punter be in trying to understand the jargon. This group focuses on how value for money is expressed, enforced and communicated.

We support the principle that members should be able to understand whether their scheme is performing well. However, value-for-money ratings also carry significant power. They will influence trustee behaviour, in particular, as well as employer decisions and market structure. That makes proportionality and precision essential.

I am particularly concerned about overreliance on short-term performance metrics. Saving for a pension is, or certainly should be, inherently long-term. Schemes should not be penalised for temporary underperformance driven by market cycles or responsible long-term investment strategies.

We also question whether compliance mechanisms become blunt instruments. Labelling schemes “poor value” without clear context may drive consolidation for the wrong reasons, reducing competition without improving outcomes. Clear language matters—I use the word “jargon” once again—but so does nuance. Members need information they can trust, not simplified labels about market complexity.

I have some questions for the Minister. How will this regime distinguish between persistent structural failure and short-term variation? How will it use this intermediate rating? How will it encourage genuine improvement rather than defensive behaviour by trustees? Trustees are meant to be very careful; they will be cognisant of the intermediate position. I will be interested to hear the Minister’s views on that.

[Baroness Stedman-Scott (Con)]

My Lords, again, this is a substantial group. I will not detain the Committee for too long but, before I turn to my amendments, I briefly welcome those tabled by the noble Baroness, Lady Altmann. As she set out so clearly, her amendments seek to simplify the language used in value-for-money assessments so that they are more readily and intuitively understood by scheme members. This goes to a point that has arisen repeatedly during our discussions in Committee: many of the concepts in this Bill, as well as the language used to describe them, are dense, technical and difficult to grasp. A considerable level of prior knowledge is often required simply to understand what is being proposed, let alone its practical effect. I am reminded of a remark attributed to Joseph Pulitzer. He said that information should be put before people,

“briefly so that they will read it, clearly so that they will understand it … picturesquely so that they will remember it, and, above all, accurately”.

Surely that is the standard to which we should aspire, in not only this Bill but more broadly in our legislative work. Clarity, intelligibility and accessibility should be central objectives. The language we choose and the way in which we define key terms in legislation are fundamental, yet they are too often treated as secondary concerns.

I therefore warmly welcome the amendments in the name of the noble Baroness, Lady Altmann, precisely because they address this issue head-on. Jargon is easy to reach for, but it is also, in a sense, lazy. When we are constructing a value-for-money framework whose purpose is to communicate value for money, we must be vigilant about terminology that obscures rather than illuminates and about euphemisms and phrases that sound authoritative but fail to convey real meaning. Many noble Lords will be familiar with Eric Blair’s essay, Politics and the English Language, and the amendments tabled by the noble Baroness serve as a timely reminder of some of the lessons it contains.

The first amendments in this group to which I have added my name—Amendments 60 and 61—would remove sub-paragraph (ii) from Clause 15(1)(b) as well as subsection (2). These amendments speak to a simple point: where responsible trustees or managers have determined that a scheme is not delivering value for money, that judgment should be sufficient to justify a rating of “not delivering” without the need to satisfy additional statutory conditions that risk being overly prescriptive.

Trustees already sit at the centre of this framework. They are charged with assessing investment performance, costs, charges, service quality and long-term member outcomes. They are subject to fiduciary duties and regulatory oversight. It is therefore entirely reasonable to trust their professional judgment when they conclude that a scheme is failing to deliver value for money. As the Bill is currently drafted, that judgment must be supplemented by one of a series of defined conditions, whether persistent intermediate ratings, a lack of realistic prospect of improvement or regulatory non-compliance. While well-intentioned, those conditions risk turning what should be a principles-based regime into a mechanistic one, encouraging trustees to focus on meeting thresholds rather than acting decisively in members’ best interests.

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[Baroness Coffey (Con)]

My Lords, this is an interesting part. It recognises a lot of our labour market, where people are working with multiple employers over a variety of time periods. Even those young people who were on the Kickstart scheme will have got contributions to a pension scheme, which they may completely forget about once they go to their next, perhaps longer-term, job.

I remember a few years ago the lovely people over in the Department for Culture, Media and Sport. They have a “good purposes” fund where they go after dormant assets all over the place and take them away, with a general promise that the money will come back if somebody tries to get it. I seem to recall telling them to jog on when it came to pension funds, although some negotiation might have been arranged.

I am just trying to understand how all of this is going to fit together. That is why I think Amendment 83 is particularly helpful; basically, it says that the pensions dashboard must be in place. This is about making an informed choice. One of the things I am trying to understand is whether Clause 22(3)(b), which my noble friends on the Front Bench have suggested should be removed, is passive and non-engaged. Will the trustees running the scheme be required to make some effort to try to contact that person so that it does not just slide away without people even realising?

In terms of the other aspect, I assume, under Amendments 80 and 81, it is right to try to get into some more detail about prescribing, which could perhaps be further enhanced by just getting to understand in Clause 25 what the Minister is thinking at this point, especially when it suggests that the trustees or managers of a scheme can determine whether it is the best interests for this to transfer or not. Are we talking about, say, people who are in prison, people who have gone abroad or people who are on a career break? It would be helpful to have a sense of what Ministers are thinking in terms of having this variety of powers, first, to be able to do it, but then to say, “Actually, we’ll leave it to the managers or trustees of the scheme to determine whether it is that person’s best interests”. I would be grateful for some understanding, again, of how this might work in practice, but the solution will definitely be Amendment 83 and I hope that the Minister will give that consideration for Report.

[Lord Palmer of Childs Hill (LD)]

My Lords, this is an appropriate time to stand, because Amendment 83 is signed by the noble Lord, Lord Vaux, and by me. In the absence of the noble Lord, Lord Vaux, today, and having discussed the matter with him, I speak on my behalf and his to Amendment 83. As has been stated, it is intended to deal with the risk that consolidating small pots might worsen the problem of lost or forgotten pensions.

We are all aware of the problem of people losing track of small pension pots: a problem that has increased in recent years as people tend to move between jobs more frequently, and may therefore end up with several small pensions, perhaps from many years ago. Chapter 2 of the Bill allows the Government to make regulations to consolidate small, dormant pension pots. I, and indeed the noble Lord, Lord Vaux, and the noble Baroness, Lady Coffey, support this as we believe that providing additional scale to small, dormant pots should enable greater efficiencies and a reduction in costs.

However, a possible unintended consequence could be to make it more difficult for a person to trace a forgotten pot if it is moved to a consolidator without their knowledge: for example, if any notice is sent to an old address. The introduction of a pension dashboard, as enabled by the Pension Schemes Act 2021, was intended to make it easier for people to identify pensions that they have lost track of or even forgotten. This has been somewhat delayed, but progress does, at last, seem to be happening. The connection deadline is October 2026, so hopefully people may start to be able to access the dashboard in the not-too-distant future.

In order to avoid making the problem of lost pensions worse, Amendment 83, in the name of the noble Lord, Lord Vaux, and myself, simply says that the regulations that would mandate the consolidation of a dormant, small pot could not be made until the dashboard had been available for at least three months. The three months is designed to give a bit of time to ensure that it is actually working and that any teething issues have been resolved. I think it prudent to ensure that we do not cause unintended consequences from what is otherwise a good policy, I hope the Minister will be sympathetic to the intention of the course outlined in Amendment 83.

[Baroness Altmann (Non-Afl)]

My Lords, I support the amendments in this group, particularly Amendment 83, which has received wide support. I think it is really important, as is the idea of lengthening the 12-month period for so-called dormant pots, and Amendment 81 from the noble Baroness, Lady Bowles, where, for example, a woman may take time off to care for children or other loved ones and intends to return, but her pension will have been moved before she gets back. Those are distinct possibilities under this scheme. We are talking about moving somebody’s savings—or investments; I am doing it myself—from one place to another, just because they have not done anything with their pension for a while. The pension fund is not meant to have anything done with it when you are younger; it is meant to just sit there and stay there.

Of course, the big problem that needs to be solved here is the costs to providers of administering all these very small pots. But the aim of the dashboard itself is meant to be to help people move their pots from one place to another. It seems to me that this particular section of the legislation is trying to deal with something that is meant to be dealt with by a different policy area. The consolidators, of course, will be attractive to providers to establish, and the money saving from not administering these small pots will also be attractive to the providers. But have the Government given any consideration to the idea of making, for example, NEST the consolidator? That is a Government-sponsored scheme. It has obviously had to have reasonable charges. Any transfers do not incur an upfront fee. That would run less of a risk of having consolidators that end up perhaps not performing well.

Pension Schemes Bill

Lord Palmer of Childs Hill Excerpts

Committee stage
Monday 26th January 2026 Grand Committee

[Lord Palmer of Childs Hill (LD)]

My Lords, I thank all noble Lords who have contributed to this debate. As we know, this group addresses the use of scale, as measured by assets under management or monetary value, as a determinant of scheme quality.

The noble Lord, Lord Fuller, gave the example of the Orkney trust. I ask myself: what is the reason? Is it size? Personally, I think it is the calibre of the single malt whisky. Then we go to the other end of the country, to Guernsey. Is it because trusts are at the extremes of the country that causes the good benefits, or is it something else? You can always look for a reason: it could be size, location or anything else—or, indeed, the quality of the whisky.

We accept that scale can bring efficiencies, but there is a strong question over whether size alone is a reliable proxy for value. Amendments 91 and 95 recognise that some master trusts and group personal pension schemes deliver strong investment performance despite being below prescribed thresholds. Amendment 98 similarly acknowledges that innovation and specialism do not always depend on scale, location or whatever else.

We are also concerned about the rigidity of fixed monetary thresholds in the Bill. Amendments 99, 101, 106 and 108 in the name of the noble Baroness, Lady Altmann, are concerned about the rigidity of fixed monetary thresholds in the Bill. These amendments probe whether the figures chosen are evidence-based and future-proofed, or whether they risk being outdated—that is the point—as the market evolves. It is not cast in stone, and we should not try to see it as such.

Amendments 101, 104 and 108 in the names of the noble Baroness, Lady Altmann, and others, raise an additional concern: the risk of mandating common investment strategies. Diversity of approach is a strength of a pension system. Forcing schemes into uniform strategies risks herding behaviour and systemic vulnerability. My question to the Minister is this: is the Government’s objective genuinely better member outcomes—which I believe we all want—or prioritising administrative simplicity at the expense of innovation, competition and resilience? All the amendments in this group tackle this problem, and those in the name of the noble Baroness, Lady Altmann, particularly stress that. I hope we will continue to push these through to the next stage of the debate on this Bill.

[Baroness Stedman-Scott (Con)]

My Lords, today’s groups build directly on the issues explored in last Thursday’s debate. That discussion was both stimulating and constructive, and the contributions made, particularly on mandation, highlight the value of the scrutiny that this Bill continues to receive in Grand Committee. On this group, in the interests of brevity—I am sure that will please the whole Committee—I shall keep my remarks focused on the amendments in my name and that of my noble friend Lord Younger of Leckie. A number of significant and related issues have been raised by other noble Lords, and we will wish to return to these later today. We will listen carefully to the Minister’s response to the points made on this group.

Amendment 98 would introduce a clear and proportionate innovation exemption for relevant master trusts under Clause 40, so that schemes delivering genuinely specialist or innovative services are not automatically required to meet the scale threshold simply because of their size. We have been challenged today not to be obsessed with size. We recognise the policy aim of improving outcomes through scale. However, as I said, size is not always a reliable proxy for quality or value: there are master trusts that are smaller by design yet deliver strong member outcomes through innovation, whether in investment approach, governance or engagement with particular workforces. As the Bill is currently drafted, such schemes risk being forced to consolidate or exit, not because they are failing members but because they do not meet a blunt asset size test.

Amendment 98 provides a sensible alternative route, recognising that innovation and specialisation can also deliver high-quality outcomes. This amendment simply ensures that size alone is not determinative. I hope the Minister will see this as a constructive amendment that supports innovation and choice while remaining fully aligned with the Bill’s objective of improving outcomes for savers.

Amendment 102 is, again, a probing amendment. Clause 40 gives the Secretary of State the power to determine by regulations the method for calculating a master trust’s total assets for the purposes of this provision. That is a potentially significant power, because the way that total assets are defined and measured will determine which schemes fall within scope and which may benefit from exemptions.

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So I totally endorse the noble Baroness’s Amendment 97, and I wish more power to her elbow. I sense that this will be another of those themes that comes back on Report, as my noble friend Lady Noakes said. We will have to tease this through. I encourage the Minister to observe that all the party groups on this side of the Room are at one. As we go from Committee to Report, I hope she will consider a slight adjustment in the approach so that we can deliver a pensions Bill that works for members—because this one does not.

[Lord Palmer of Childs Hill (LD)]

My Lords, I congratulate the noble Baroness, Lady Altmann, on having a group of nine amendments all on her own. We normally share groups rather than have them all on our own. This group considers how scale requirements interact with default pension arrangements where most savers remain invested. I have listened to the debate and, having spent a large part of my career in accountancy and advising clients, I know that the trouble is that the majority of clients are not expert enough to know what they should do with their pension. They seek advice from various organisations on what they should do. We should make sure that the quality of the advice they get suits their position in life. As other noble Lords have said, we are concerned about the overly rigid scale test, which could unintentionally narrow choice within defaults and push schemes towards one-size-fits-all designs.

Amendment 97 highlights the importance of allowing defaults that reflect members’ differing ages, health conditions, retirement plans and risk profiles. Amendments 97A to 101B probe—this is the point—whether the authority can take account of the combined value of assets across multiple default arrangements, rather than assessing each in isolation. Without this flexibility, schemes that offer well-designed cohort-based defaults could be penalised simply for tailoring provision.

Amendments 168A and 170A reinforce this point, seeking to ensure that schemes are not excluded from the market for moving beyond crude uniform defaults. Our concern is that defaults should be designed around member needs, not regulatory convenience. I hope the Minister will explain how the Bill avoids pushing schemes towards uniformity at the expense of suitability and long-term outcomes.

I hope the Minister does not regard the series of amendments in this group as combative. They are meant to try to help pensioners or future pensioners. It is wrong if the Government look for a simple process but do not look at the benefit for the people concerned. I think it was the noble Lord, Lord Fuller, who talked about what happens in gilts and the like. I come from a period in the chartered accountant profession when you always went into gilts in what you thought were the last few years of your working life. Now, things have changed. We have to look at what you do and when you do it, and those things depend on the people involved.

I hope the Minister will see that these amendments are trying to say that things should not be too prescriptive. They are not against what the Government are trying to do, which is look after people. But are doing it on a one-size-fits-all basis, which does not work in the real world that we are in. I hope the Government go back and think about this a little more so that, when we come to Report, we can be a little more innovative.

[Baroness Stedman-Scott (Con)]

My Lords, I wish to speak briefly in support of this group of amendments in the name of my noble friend Lady Altmann. She has once again demonstrated her expertise and the value that she brings to our scrutiny of these important issues. Most importantly, she explained the spirit in which these amendments were tabled.

Throughout our proceedings on this Bill, a consistent theme across the Committee has been the need for proportionality in the steps we are taking on scale and value for money, and for definitions that are sufficiently comprehensive to reflect how the market actually operates in practice. I do not intend to repeat the points already made by the noble Baroness or ask the questions she has posed, but we will listen carefully to the Minister’s response on these issues.

Clause 40, as drafted, risks applying the scale test in an overly narrow and mechanical way by requiring the regulator to assess each default arrangement in isolation without regard to the wider context in which it is offered. That approach is not necessarily proportionate; nor does it reflect the economic reality of how master trust providers operate. This amendment would allow the regulator to take into account the combined assets of several non-scale default arrangements offered by the same provider. In doing so, it would not dilute the principle of scale; rather, it would ensure that scale is assessed in a comprehensive and realistic way, focusing on the resilience, governance and efficiency of the provider as a whole.

That matters because, without this flexibility, we risk forcing consolidation for its own sake and potentially requiring well-run, well-performing defaults to be wound up simply because they fall on the wrong side of an arbitrary threshold—even where the provider clearly operates at scale overall. This amendment therefore speaks directly to the principles that we have already raised in Committee: that regulations should be outcome-focused rather than box-ticking, and that they should avoid unintended consequences that could undermine member confidence rather than enhancing it. For those reasons, I believe this is a sensible and proportionate refinement of Clause 40, and I hope the Minister will give it serious consideration.

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[Baroness Penn (Con)]

My Lords, I will speak briefly in support of Amendments 112, 114 and 117 in the names of my noble friends Lady Coffey and Lady McIntosh of Pickering, which aim to set a cap on asset allocation.

In response to our debate on the previous group, the Minister consistently described the mandation power as seeking to achieve a “modest but meaningful” investment in private assets; and said, importantly, that it was designed as a “narrow backstop” to delivering the Mansion House Accord. If that is the case, why is the proportion of assets that can be mandated under this power not capped in line with that accord? Indeed, as I read it, it could be up to 100% of assets. Why is that? The Minister may point to consultation and other measures that will constrain the use of the power but, for something so controversial and which the Government say they do not want to use, I cannot understand why they are not constraining it in primary legislation.

I will touch on timescales in our debate on the next group, but the Minister says that this Government do not want to use this power. However, as things currently stand, it would be open to the next Government to use the power, and the one after that—as well as a couple of Governments in between if we do not go to full Parliaments, as we have not always done in recent years. In those circumstances, it would also be sensible to limit the power to delivering what the Government say they want it to do.

Why do the Government not want a maximum limit in primary legislation? What is their objection to it? The cynic in me wonders whether the power is so widely drawn that, when we remove mandation on Report—I might be getting ahead of myself but that is on the cards—the Government could bring forward a series of concessions at ping-pong to limit the use of the power to what they say they want it to do. I am sure that that is not the case, but it might be better than the position in which the Government think that this power, as it appears in the legislation, has been drawn appropriately. I am really interested in the Minister’s response on this.

[Lord Palmer of Childs Hill (LD)]

My Lords, I will come in at this moment because I wish to speak in favour of the amendment from the noble Lord, Lord Vaux, which I have co-signed, because he is unable to be with us today. These words are both mine and the noble Lord’s, more or less.

I am not in favour of the asset allocation mandation clauses generally. Amendment 119, however, seeks to probe the reasons why the Government have chosen a particular asset class for mandation: private equity. I have no problem with pension schemes choosing to invest in private equity; historically, it has generated good returns, in large part because of the use of debt to leverage those returns. Private equity may be a good investment for pensions schemes, and this amendment would not prevent that.

However, my understanding is that the principal motive of the Government for mandating asset allocation is to drive greater economic growth. I agree that venture capital and private debt—two other asset types listed in the Bill—may indeed create growth, but I do not understand why the Government believe that private equity is a growth driver. I have to assume that this is because the Government have fallen for the story that the private equity industry often tells about how much investment it makes, how many people it employs, what great returns it generates, and so on. What private equity actually does is buy existing companies or assets, allowing the previous owners to cash out.

Very rarely, I believe, does a private equity company provide new equity into a company. Rather, it typically does the opposite: it funds the acquisition with a very high proportion of debt. The leveraged buy-out is the basic model of most private equity activity. That debt is not borrowed by the private equity itself; rather, it is pushed down into the underlying company, and the interest and any debt repayments are made from that company’s profits.

One effect of this is to reduce the taxable profits—in other words, the debt interest is tax deductible—and therefore the tax is payable by the company. The debt itself is often located in offshore low-tax locations, so tax is not paid on the interest by the private equity or the lender, which may well be related. This is a direct loss to the Exchequer. I hope the Minister can reply to that.

The high leverage also has the effect of reducing investment by the company in its products or services. Instead of investing in its future growth, the company now has to use much of its cash flow to pay the interest. What often happens is that the private equity undertakes a cost-rationalising exercise so that the profits are improved in the short term with a view to selling the business again as soon as possible. The leveraged effect of the debt means that private equity can make a substantial gain even if the underlying business grows only in line with inflation.

The cost rationalisation often invokes workforce reductions. Studies indicate that private equity-owned companies typically have lower levels of employment even five years after the original buy-out. This certainly tallies with my experience, although I have not had the benefit of the experience of the noble Lord, Lord Vaux, who worked for private equity-owned companies during his career.

In the meantime, if there are any profits left, rather than being invested in growth they are usually paid out as dividends. In fact, it is not uncommon, if a company has managed to reduce its debt ratio, for a PE to recapitalise the company to put in more debt in order to allow the payment of a dividend. Of course there are exceptions, but, as many examples show, such as Thames Water—indeed, much of the water industry—Debenhams, Southern Cross and Silentnight, private equity cannot legitimately claim to be a force for growth. Are there good returns for its investors, and particularly its partners? Yes—but is it a force for growth? It is not really. It is said that £29.4 billion was invested in UK firms by private equity in 2024. Yes, but that investment was almost entirely in buying out existing businesses, which is very different from providing capital for growth.

So the noble Lord, Lord Vaux, and I are baffled as to why the Government think that mandating pension funds to invest in private equity will be good for the country. It may be good for someone but not necessarily for the country. I repeat that I have no problem with a pension fund investing in private equity if the trustees believe it is right for the fund and its members, but I see no benefit, and probably a downside, for the country as a whole. If we must mandate allocation, let us at least target it to asset types that generate growth, such as venture capital or infrastructure. If the Government’s primary motive for mandation is to drive UK growth, we should exclude private equity from the list. I hope the Minister and her colleagues will give thought to this, because we are on the same wavelength and we want the same answer, but not in the way that the Bill proposes at the moment.

Pension Schemes Bill

Lord Palmer of Childs Hill Excerpts

Committee stage
Tuesday 3rd February 2026 Grand Committee

[Baroness Neville-Rolfe (Con)]

My Lords, it is fair to say that I am not keen on Chapter 4 of the Bill, which appears to allow the state to trample on and prevent the establishment of smaller funds, and, if necessary, requires their assets to be moved, presumably to another fund. “Squashing new entrants” was the telling phrase used by my noble friend Lady Noakes. I very much hope that the Minister will be able to provide some reassurance.

I support the amendments in the name of my noble friend Lady Noakes and have added my name to most of them. It is essential to permit the regulations to be pro- competitive rather than over-exclusionary, and for the review required by Clause 43—the timing of which we are yet to hear about—to consider the competitive landscape for pension scheme provision.

It is also important that the regulations made encourage innovation, as Amendment 170 would. The substantial £25 billion minimum provided for in the Government’s reforms seems set to deter such innovation—innovation that is characteristic of smaller, growing operators. We have heard that, at length, on several days, but we have not yet received an adequate answer. The noble Baroness, Lady Altmann, has already raised some good points about other risks that may arise from the proposed arrangements.

My noble friend Lady Noakes rightly suggested that the Pensions Regulator should be made to consider the competitiveness of new entries. I share her praise for the fintech sandbox, although I would say that that was a long time ago—indeed, when I was a Treasury Minister about 10 years ago. I am, however, less sure about the FCA’s overall success. I have therefore added my name to my noble friend Lord Younger’s stand-part notice, which questions the need for Clause 45. The Government’s Explanatory Notes are far from helpful and the implications of this clause are unclear. Why does it extend the FCA’s supervisory jurisdiction to default arrangements under Chapter 4? What, if any, new delegated powers are being given to it?

I have encountered a lot of problems with the FCA over the years. The truth is that I have not found it business or fund-friendly. It presents itself as the champion of the consumer, but adds cost, delay, bureaucracy and uncertainty in a way that often raises prices and returns to the very consumer that it was set up to protect. I am therefore of the view that its role should be minor and constrained. What is the background and rationale for this clause? We need to know more if we are going to support it.

[Lord Palmer of Childs Hill (LD)]

My Lords, I thank everyone for their contributions. It might take 300 years to get it right, but we do not have 300 years; we are trying to get it right in the course of a few meetings, as the noble Lord, Lord Fuller, pointed out. The noble Lord, Lord Kirkhope, gave us the view from the coalface with regard to the decisions that trustees have to take and about trustees working on behalf of their members. The key concern, which is why I support these amendments, is that the default should be shaped around members’ needs and outcomes, not regulatory convenience or market consolidation by default.

The amendments in this group emphasise the importance of competition, innovation and transparency. They highlight the need for clear member communication before defaults are subject to mandation, for a value-for-money framework to be in place first and, I am afraid, for Ministers to justify why mandation is limited to automatic enrolment defaults. The amendments seek to put some meat on to what this Bill is meant to do. They are, I think, necessary to make sense of the precautions that are needed if this Bill goes forward.

[Viscount Younger of Leckie (Con)]

My Lords, I hope that the Committee will think that it makes sense if I begin with the four amendments in this group tabled in my name. I start with our probing stand-part question on Clause 45. This is a short clause, but an important one. It makes changes to the Financial Services and Markets Act 2000. The purpose of the question is simply to understand the practical effect of those changes, particularly in the context of the wider programme of consolidation and reform of assimilated European Union law.

My noble friend Lady Neville-Rolfe, who I am pleased to say is in her place and has spoken so eloquently, may feel a certain sense of déjà vu, having spent a considerable time on the Front Bench examining precisely these issues. My questions to the Minister are therefore straightforward. What, in practical terms, does Clause 45 change in the operation of the Act?

I start with some fairly basic questions for clarification. Will further secondary legislation be required to give effect to these provisions? If so, do the Government have a timetable over which they envisage this process taking place? How does this clause interact with the statutory instruments recently considered by the Grand Committee as part of the wider reform programme? This is a live and important area. As assimilated European Union law becomes domestic law and increasingly interacts with our financial institutions, the FCA and other relevant regulators, it is essential that Parliament has clarity on how these changes fit together and where accountability lies.

--- Later in debate ---

There should have to be quite a high likelihood that members and others will be better off after changes. I am very sceptical about providers being able to make unilateral changes; there needs to have some evidence behind that. My amendment uses the phrase “there is evidence”, which does not mean that you have to have 100% evidence on one side of it, but it cannot just be a matter of convenience—a matter that it is easier for the providers—and therefore it is bound to be easier for the members and the scheme as a whole. That is quite simple and it needs investigating. I hope that, if the best interests test is to stay there, the Government will ensure that a high standard has to be passed, not one that is a minority standard.

[Lord Palmer of Childs Hill (LD)]

My Lords, I have just a short comment. The Minister needs to explain why existing protections are insufficient and how this power will be constrained in practice. The concern is that lowering the evidential bar for intervention risks undermining legal certainty, which we have before intervention, and then trust in the scheme governance. An override of contractual terms should be firmly evidence-based and used sparingly. When there is a contract and we are saying that the contract could be overridden, we need to know with some facts in what circumstances it can be overridden for some wider purpose which the Government think is needed. I do not think that is proven as yet.

[Viscount Younger of Leckie (Con)]

My Lords, I speak briefly to Amendment 175, tabled by my noble friend Lady Noakes and supported by the noble Baroness, Lady Bowles. This amendment relates to new Section 117D, the best interests test as set out in Clause 48. This new section establishes the test that must be satisfied before a unilateral change can be made. It requires a provider to reasonably conclude that such a change is reasonably likely to lead to

“a better outcome for the directly affected members … (taken as a whole)”

and to

“no worse an outcome for the other members of the scheme”,

also taken as a whole.

Many of the questions that my noble friend and the noble Baroness have raised reflect concerns that have been put to us during scrutiny of the Bill. In particular, there remains uncertainty about what, in practice, is meant by a better outcome, and how that judgment will be assessed, evidenced and challenged. I say again, as we have said on different parts of the Bill, that we believe we need definitions and clarity.

We will listen carefully to the Minister’s response on this point. The clarity and robustness of the best interests test are critical, particularly where changes may occur without the explicit consent of individual members. If that clarity is not forthcoming, this may well be an issue to which we will need to return.

--- Later in debate ---

[Lord Davies of Brixton (Lab)]

Once again, I find myself in the position of being in broadly the same area as the noble Lord, Lord Fuller. I agree with much of what he said. We can always be in favour of reviews. The only substantial objection is that the Secretary of State—or more accurately, the hard-pressed officials—has better things to do, particularly with having to implement the Bill when it is an Act.

The Pensions Commission is also crucial. The noble Viscount, Lord Younger, for whom I have a lot of respect, challenged me on why I am not doing more on adequacy, in effect. Of course, the answer is that I fully support the Pensions Commission; that is where the focus should be on that area. I think my noble friend the Minister is aware of some of my views on the level of inadequacy in pension provision, but the commission is where it should be at.

Pensions are inherently political. I make no apology for making political points. I am against the idea of moving towards a joint regulator. There are two broad types of pension provision: individual contracts and employer-sponsored collective provision. I am very much in favour of the latter as opposed to the former. The former has, and always will have, severe problems, whereas collective provision is what has led the high standard of private provision across, broadly, half of the working population.

The problem with having a single regulator is essentially cultural. One or the other approach is bound to predominate in its thinking. It is impossible to ride two horses, unless you are in a circus, and that is not where we want to be. We need a regulator for collective employer-sponsored provision, and a regulator for market-based provision. That is what we have got so, in a sense, in my few remarks I have already carried out the review that has been called for and reached a satisfactory solution.

[Lord Palmer of Childs Hill (LD)]

My Lords, what worries me is that the noble Baroness, Lady Coffey, says we should grab the challenge. I am not sure that I am ready to grab the challenge and not convinced that we should abandon, in any way, the Financial Conduct Authority. I wonder what representations have been made by the FCA on this. I would like to hear how the FCA feels about the Pensions Regulator taking over and what has happened in the past.

[Baroness Coffey (Con)]

I can assure the noble Lord that the FCA will not give anything up. In fact, it would probably rather swallow the Pensions Regulator.

[Lord Palmer of Childs Hill (LD)]

Maybe that would be a good thing. I am not convinced that the regulator pushing away from primary legislation to regulation is necessarily the way forward. I am not convinced that what has happened to date has failed. Therefore, I am not sure why we want to change this without adequate proof. The idea that the FCA wants to swallow up everything else is fairly normal in the gladiatorial forum that we have. I would like to see what the FCA and others have to say about this before we make a final decision.

[Baroness Stedman-Scott (Con)]

My Lords, I speak to both Amendments 180A, tabled by my noble friend Lady Coffey, and Amendment 206, which stands in the name of my noble friend Viscount Younger of Leckie and myself. Both amendments address the regulation of pensions and how the regulation is best exercised in the interest of scheme members and future pensioners.

It was the intervention of my noble friend Lady Coffey at Second Reading that first prompted me to reflect more deeply on the role of regulators. As my noble friend argued then, and has argued again today in speaking to Amendment 180A, this Bill misses a significant structural opportunity by retaining two separate pension regulators. I agree with her. There is something inherently odd about the fact that very similar pension products can be treated differently depending on whether they fall within the remit of the Pensions Regulator or the Financial Conduct Authority. That observation is not controversial; it is simply a reflection of how the current system operates.

I recall clearly the passage of the then Pension Schemes Bill in February 2020 and remember responding to amendments from across your Lordships’ House by explaining that personal pension schemes were regulated by the FCA, rather than the Pensions Regulator, and that imposing requirements on personal pension providers through that legislation would risk creating a patchwork of overlapping regulatory oversight. Providers, it was argued, would otherwise be required to respond to two separate regulators in relation to the same activity. That was the Government’s position at the time, and it illustrates that the existence of regulatory fragmentation in this area is not a matter of dispute.

A great deal of work has gone into managing the fragmentation, with strategic documents, dating back to 2018, seeking to grapple with the issue. The FCA and the Pensions Regulator have published joint regulatory strategies explicitly acknowledging the complexity that arises where their remits intersect and the need for close co-ordination. More recently, an independent review of the Pensions Regulator in 2023 again highlighted the challenges inherent in this divided regulatory landscape. Taken together, these developments point to structural issues in the regulatory ecosystem that can, at the very least, create confusion and the risk of inconsistency.

It was on the basis of that experience in government and of careful consideration since then that I sought to identify what might realistically be done in this Bill. I came to the conclusion that Amendment 206 represents a proportionate and pragmatic compromise. It would require the Government to establish a formal published protocol setting out clearly how the Financial Conduct Authority and the Pensions Regulator co-ordinate, how responsibilities are divided between them and how they communicate when regulating the pensions industry. The evidence shows that there is complexity, overlap and, at times, confusion between the two regulators. Stakeholders frequently complain of unclear lines of responsibility and the regulators themselves openly acknowledge that co-ordination is difficult, hence the repeated reliance on joint strategies and informal arrangements.

It was our sense that the problem is one not of outright contradiction but of opacity, complexity and accountability. Amendment 206 is, therefore, carefully targeted at the problem, which is clearly evidenced. It seeks to improve co-ordination and clarity without asserting a level of regulatory failure that has not yet been conclusively demonstrated. That does not place it in opposition to the argument advanced by my noble friend Lady Coffey; indeed, I would be very happy to work with her, as we did so constructively on previous pension legislation, to strengthen this area further.

In my view, a formal co-ordination protocol has three important virtues. First, it can evolve over time as the regulatory landscape changes. Secondly, it can be tightened if problems persist or new risks emerge. Thirdly, it can itself become the evidence base for any future decision to pursue more fundamental consolidation of regulatory functions, should that ultimately be judged necessary. For those reasons, I commend Amendment 206 to the Committee and urge the Government to see it not as an obstacle but as a constructive and proportionate step towards greater clarity, accountability and confidence in the regulation of pensions.

Pension Schemes Bill

Lord Palmer of Childs Hill Excerpts

Committee stage
Thursday 5th February 2026 Grand Committee

Moved by

[Lord Palmer of Childs Hill]

184: After Clause 96, insert the following new Clause—
“Report on the impact of pension market consolidation(1) The Secretary of State must, within 12 months of the day on which this Act is passed, publish a report on the impact of consolidation in the occupational pensions market.(2) The report must include an assessment of—(a) the level of market concentration among pension scheme providers, including trends in the number and size of schemes;(b) the effects of consolidation on competition, innovation, and consumer choice in the pensions market;(c) the potential barriers to entry and growth for small and medium-sized pension providers;(d) the adequacy of existing regulatory and competition safeguards in preventing anti-competitive behaviour regarding—(i) exclusivity arrangements,(ii) exit charges, and(iii) pricing structures;(e) the role of The Pensions Regulator and the Competition and Markets Authority in monitoring and responding to market concentration;(f) the merits of policy or regulatory measures to support new market entrants.(3) The Secretary of State must lay a copy of the report before both Houses of Parliament.”Member’s explanatory statement
This new clause would require the Government to report on the impact of market consolidation on competition and new market entrants.

[Lord Palmer of Childs Hill (LD)]

My Lords, this amendment has the distinction of being in a grouping all of its own, which obviously shows how important it is. The proposed new clause in it would require the Secretary of State to publish a report within 12 months on

“the impact of consolidation in the occupational pensions market”.

It would ensure, I hope, that Parliament and the public have transparency on how consolidation is reshaping the sector. We know that consolidation is accelerating in the pensions market and, although scale can deliver benefits—I hope—it can also raise risks: reduced competition, fewer choices for savers and further barriers for new entrants. A clear evidence base is an essential part of the solution to strike the right balance.

The report referenced in this amendment calls for information on a number of things. The first is market concentration—for instance, trends in the number and size of schemes and the level of provider dominance. The second is effects on competition and innovation: whether consolidation is driving efficiency or stifling creativity and diversity. The third is consumer choice: how member options are being affected. The fourth is barriers to entry: challenges faced by small and medium-sized providers in entering or growing in the market. The last is an assessment of whether current competition and regulatory safeguards are sufficient.

The report would also have a particular focus on exclusivity arrangements, exit charges and pricing structures that may distort the market. Furthermore, the Pensions Regulator and the Competition and Markets Authority would have a role in overseeing these risks. The review would also examine potential policies or regulations to support new entrants and maintain a healthy and competitive pensions market.

To summarise, we know that consolidation must serve savers’ interests, not just the interests of the largest providers. This proposed new clause would ensure that Parliament is properly informed—it should be informed on all things, whether on this or on the noble Lord, Lord Mandelson—that regulators are held to account and that future policy is based on evidence. From a Liberal Democrat perspective, well-functioning markets matter. Competition, diversity of approach and the ability for new entrants to challenge incumbents are essential if savers are to benefit over the long term. Ministers need to explain why a formal review of consolidation is resisted, given the scale of structural change this will accelerate. We are asking just for a review, and we hope the Government will not think this too much to ask for before we enter this new realm. I beg to move.

[Baroness Stedman-Scott (Con)]

My Lords, it is a pleasure to close this debate and respond to the remarks of the noble Lord, Lord Palmer, on his Amendment 184. I am grateful to him for raising this issue, because it goes to the heart of how we ensure that pension reform delivers better outcomes for savers rather than simply neater market structures on paper. I think there is reasonably wide backing across the pensions industry for the Government’s broad objective of greater consolidation and efficiency within the defined contribution market. Many stakeholders accept, and indeed support, the proposition that increased scale, when combined with robust governance, strong investment capability and appropriate oversight, has the potential to deliver stronger long-term outcomes for members. Few would argue for fragmentation for its own sake.

However, support for consolidation is not the same as support for consolidation at any cost, or consolidation pursued without sufficient regard to its secondary effects. Well-founded concerns remain that the current design of the scale test risks it being too blunt an instrument. In particular, it does not distinguish adequately between schemes that are genuinely underperforming and those smaller or mid-sized providers that, despite operating below the proposed thresholds, none the less deliver consistently high-quality, well-governed and, in some cases, market-leading outcomes for savers. Indeed, the Government’s own analysis underlines this risk. The chart contained in paragraph 70 of the Government’s 2024 report shows no clear or consistent correlation between assets under management and gross five-year performance across large parts of the master trust and group personal pension market.

The principal scale-related concern identified appears to relate not to well-run schemes operating below the threshold but to the very smallest arrangements, in particular certain single-employer schemes where governance capacity and resilience can be more limited. That matters because consolidation in a pensions market is not a neutral process. This is not a typical consumer market. Savers are largely captive, choice is constrained, switching is rare and inertia is high. In such an environment, reductions in the number of providers can weaken competitive pressure long before anything resembling a monopoly appears. The risk is not always higher charges tomorrow but slower innovation, less responsiveness and poorer outcomes over time.

That is why this amendment is important. It would ensure that consolidation serves savers and that Parliament retains a clear grip on how the market is evolving. Small distortions in competition today—barely visible in the short term—can compound into materially worse outcomes over 30 or 40 years of saving. In a system built on long horizons, early and structured scrutiny is essential.

There is also the question of innovation. Smaller and newer providers have often been the source of advances in member engagement, digital capability, decumulation options and investment design. If consolidation raises barriers to entry through disproportionate compliance costs, restrictive exit charges or exclusivity arrangements, innovation risks being squeezed out, even where headline charges appear to fall. Efficiency gains that come at the expense of progress are a poor bargain for future retirees.

The report required by this amendment would not obstruct sensible consolidation; nor would it second-guess the direction of travel. Rather, it would provide Parliament with the evidence needed to ensure that consolidation is proportionate, targeted and genuinely in the interest of savers. It would help ensure that regulatory and competition safeguards remain fit for purpose as market structures change, and that opportunities for new high-quality entrants are not inadvertently closed off.

For these reasons, I believe that this amendment strikes the right balance. It is supportive of reform, alert to risk and grounded firmly in the long-term interests of those whose retirement security depends on the decisions we take today.

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

My Lords, I thank the noble Lord, Lord Palmer, for introducing his amendment, which would require the Government to conduct a report on the impact of consolidation in the occupational pensions sector within 12 months of the Act being passed. I am grateful to the noble Baroness, Lady Stedman-Scott, for her remarks and her acknowledgement of the benefits of consolidation and the widespread support for it.

The fact is that consolidation is already happening across the pension landscape. The number of DC pension providers has reduced from roughly 3,700 in 2012 to about 950 schemes today. On the DB side, the number of schemes is similarly down from about 6,500 in 2012 to 4,800 in 2026, with a record number of transactions currently estimated in the buyout market. Our aim is to accelerate this trend of consolidation through the DC scale measures and DP superfunds. As I have said before, scale brings numerous benefits directed at improving member outcomes, including better governance, greater efficiency, in-house expertise and access to investment in productive markets.

I am not going to respond in detail to the comments from the noble Baroness, Lady Stedman-Scott, on innovation and other things, because we have given them a decent canter in previous meetings in Committee, but it is absolutely essential that pension schemes remain competitive post-scale. We expect that schemes with scale will innovate and drive competition, especially, for example, in consolidating single-employer trusts. The market will evolve, as will the needs of members, and we expect that the schemes and the industry will be able to align with this.

It is absolutely right that the Bill will lead to major change in the occupational pensions market. Although I do not agree with this particular proposal, I absolutely agree with the noble Lord, Lord Palmer, that we must understand and monitor the impact of these reforms, because the impacts of consolidation really matter. That is why a comprehensive impact assessment was produced, analysing the potential impacts of the Bill, with plans to evaluate the impact in further detail. An updated version of the impact assessment was published as the Bill entered this House; crucially, it included further details of our ongoing monitoring and evaluation plans, including critical success factors and collaboration across departments and regulators.

We have provided the market with clarity on our approach so that changes can be put into effect, but we need to allow time to assess and evaluate the impacts following full implementation. We will assess the overall impacts over an appropriate timeframe, given that the full effects of consolidation will be after the Bill has been implemented.

As I have mentioned before, we published a pensions road map, which clearly sets out when we aim for each measure to come into force. The fact is that many of the regulations to be made under the Bill will not have been made or brought into force within a year of the Bill becoming an Act. Any review at that point could be only very partial. However, the Government are committed to strong monitoring and evaluation of this policy, especially of its impact on members. The noble Lord, Lord Palmer, is absolutely right to point to the crucial role of the Pensions Regulator and the CMA. They are best placed, in the first instance, to monitor the impacts of consolidation as part of their respective statutory functions, including an analysis of emerging trends. The Pensions Regulator, for example, will play a key role in monitoring the impact of consolidation on the trust-based DC pensions market via its value-for-money framework.

I can therefore assure the Committee that we will keep this area under review, consistent with our stated policy aims for the sector and for good member outcomes. We will also continue to monitor our working arrangements with the regulators; this includes their ongoing monitoring of the pensions industry. We will submit a memorandum to the Work and Pensions Select Committee with a preliminary analysis of how the Act has worked three to five years following Royal Assent. The committee may then decide to conduct a fuller inquiry into the Act, consistent with standard practice, as set out in the Cabinet Office’s Guide to Making Legislation.

Given the above, a separate government report risks duplicating work while putting an undue burden on all those involved. If issues are identified by regulators before the Government submit a post-legislative memorandum, and there is a need for government action, then an evidence-based response can be taken. I completely agree with the noble Lord about the importance of this and I thank him for raising this debate. However, I hope that he feels reassured and able to withdraw his amendment.

[Lord Palmer of Childs Hill (LD)]

My Lords, I thank the Minister for that; it gives me some reassurance, and I am always happy to say when that happens. The aim of the amendment is to improve the Bill, not to undermine it. Some of the things that the Minister has suggested may happen are already happening. When figures are quoted quickly—such as 950 schemes of one sort and 4,826 of the other—the numbers do not seem so large, but they are pretty substantial in terms of those impacted.

We are worried about the impact of consolidation. I rather get the impression that the Minister is aware that there could be problems that need to be reviewed as we go along, and we will need time to assess what is happening. I take cognisance of the Minister’s reassurances: they take us along the same path as I am suggesting. We will have time, obviously, to review what is happening as time progresses. In the light of that, I beg to withdraw my amendment.

Amendment 184 withdrawn.

--- Later in debate ---

[Baroness Altmann (Non-Afl)]

My Lords, I support and have added my name to the amendment from the noble Lord, Lord Davies. I support all his remarks, especially on the only excuse for not recognising that people need pre-1997 indexation going forward. There is a wrong that is being corrected; therefore, that wrong probably applies even more to benefits from the past. One of the reasons why I say “even more so” is because the members who have the most pre-1997 accrual are the oldest—by definition, they must be. They have much less time left to live and many of them have, sadly, already passed away. Therefore, to right this wrong by promising people money in future that they may never see, or will see almost none of, does not seem a solid way of righting a wrong.

I understand—I will go through this in more detail in the next group—that the Financial Assistance Scheme, for example, is supposedly funded by public money, while the PPF itself and employer contributions, in the form of the levy, provides the money for PPF compensation, but £2 billion from the scheme was transferred to the public purse. Thankfully, when we were trying to improve the Financial Assistance Scheme in 2005, Andrew Young recommended stopping annuity purchase, which had been happening and, unfortunately, transferred much of the money to insurers rather than putting it towards the Government to pay out over time. Nevertheless, the Financial Assistance Scheme itself represents some of the biggest losers and the ones with the most pre-1997 accrual.

Therefore, I urge the Government to recognise that the cost of the requirements in the amendment from the noble Lord, Lord Davies, are easily affordable from the PPF reserve—£14.5 billion is available. The cost estimate for this retrospective addition to the pre-1997 accruals that were not paid in terms of inflation uplifts could be around £500 million out of the £14.5 billion, depending on how the arrears are paid. I would be grateful to the Minister if she could confirm some of the Government’s estimates for what this would be; I have looked at the PPF’s estimates.

I add that the Financial Assistance Scheme does not only help those who affected by insolvency. The European court case was about insolvency, but the MFR protected employers who just wanted to walk away from their schemes before the law changed. Paying in only the MFR was hopelessly inadequate to afford the pensions. There was a brilliant campaign by the unions that went to the European court, and the Government had a great fear that they would lose that. Prior to that, we had an appeal by the workers of Allied Steel and Wire and many of the other schemes to the Pensions Ombudsman, who found in their favour and against the Government, and to the Public Accounts Select Committee. Then we had to go to the High Court, taking a case against the Government, and we won. We also went to the Court of Appeal, taking a case against the Government, and we won on behalf of those whose schemes had failed, whether the employers were insolvent or not, which means that they are all now included.

Even so, the Financial Assistance Scheme and the PPF have not recognised the pre-1997 inflation losses that have left many of these members with half their pension, or even less in some cases. I hope that the Government will look favourably on the amendment. I welcome it, and I am very grateful to the Minister for the recognition that we need to do something—there may be further consideration of that; we will come back to it in subsequent groups—to recompense for the losses of the past.

[Lord Palmer of Childs Hill (LD)]

My Lords, I wish only to say that I agree with the comments from the noble Baroness, Lady Altmann, and the lengthy exposition from the noble Lord, Lord Davies. I give them my support.

This group deals with technical amendments in the main, but they go to a question of basic fairness for pensioners whose schemes have failed. There are eight amendments in the Minister’s name, which shows that Bills can be amended, because the Government are amending their own Bill. Their amendments are no less important than those proposed on this side of the Room or those proposed by the noble Lord, Lord Davies, on the other.

The Government have accepted the principle of restoring inflation protection for pre-1997 service in the PPF and the FAS. These amendments ensure that the policy operates as intended, covering cases where the schemes technically add indexation rules that did not apply to all pre-1997 service.

The concern here is consistency and completeness. As has been said by other speakers, without these clarifications, some pensions will fall through the cracks due to historic scheme design quirks, rather than any distinction of principle. Any schemes that were and will be proposed will have quirks that are going to be found out in due course. I ask the Minister to confirm that the Government’s intention is to deliver equal treatment for those with equivalent service histories and that no group will be excluded because of technical anomalies.

[Viscount Younger of Leckie (Con)]

My Lords, I will mainly speak to and concentre on the government amendments in this group. I start by thanking the Minister for setting them out so clearly. We welcome the additional clarity that they provide.

In particular, these amendments ensure that the Financial Assistance Scheme and the PPF payments are treated consistently where a pension scheme formally required pre-1997 indexation but where that requirement did not in fact apply to the specific pre-1997 service for which financial assistance is being paid. Put simply, this is a technical clarification to ensure that indexation under the FAS reflects a member’s actual scheme entitlement, even where a scheme nominally provided for pre-1997 indexation but did not apply it to the service being compensated. We believe that this is a useful and sensible point of clarification—one that helps to ensure that the system operates as it should do.

However, I would be grateful if, when she closes, the Minister could confirm that it is now the Government’s view that these amendments are sufficient to close what may previously have been a gap in the original drafting. In particular, can she confirm that the Government are satisfied that these changes are enough to avoid confusion, to avoid the risk of legal challenge and to ensure that the Financial Assistance Scheme remains, in essence, what it should be—a safety net—rather than becoming an unintended upgrade?

I want also to make a broader process point, because these changes emerged relatively late in proceedings in the other place. I would welcome assurances from the Minister that the relevant stakeholders have been properly consulted and that the Government do not anticipate the need for further amendments on this issue in the Commons—or, indeed, as the Bill continues to go through Parliament. The Minister for Pensions, Torsten Bell, has previously stated that this change will affect around 250,000 members of the PPF, increasing their pension payments by an average of around £400 a year. The Minister cited that figure in her opening remarks, but is that still the Government’s firm and final assessment of the scale and impact of this measure? Perhaps the Minister could clarify that for us.

I also note the comments made by Sara Protheroe, the PPF’s chief customer officer, who said:

“While implementing this change will be no small task”—


that is probably an understatement—the PPF is

“fully committed to delivering this at the earliest opportunity if and when it becomes law”.

That welcome commitment raises an important practical question for the Government, does it not? What assessment has the Minister made of the extra resources that might be required? What support will be provided to the PPF to ensure that delivery can take place smoothly and without delay? Have the Government assessed whether additional resources, which could come via capacity or funding, will be required to implement this change effectively? If so, how do they intend to provide that support?

Regarding Amendment 203ZB, in the name of the noble Lord, Lord Davies, I will have more to say in subsequent groups. As the noble Lord said, there are amendments on the FAS and PPF in three different groups today. I hope that the Committee will forgive me if I delay my brief comments. I also listened carefully to the remarks from the noble Lord, Lord Palmer, and the noble Baroness, Lady Altmann. It is best that I make comments in later groups.

--- Later in debate ---

[Lord Davies of Brixton (Lab)]

I offer my support for the amendment moved and the other amendments proposed by the noble Baroness, Lady Altmann. She suggested that, in some ways, her amendments are more important than mine. I agree and I will come on to why that is so in a moment. I recognise the importance of the government amendments but, in the words of my noble friend the Minister, we have to recognise the impact of the lack of past increases on those affected.

Retrospection has been mentioned. It is a complete red herring. By its nature, any form of compensation will be retrospective. We are not going to compensate people for what happens in the future. The compensation being paid all too slowly to the Post Office managers is retrospective. The money being paid to the infected blood victims is retrospective, but we still have to pay. “Retrospection” is not a relevant word in this context. We are clear, and we all agree, that these people have lost out, to use the words of my noble friend the Minister, so retrospection is a red herring.

My noble friend the Minister also mentioned the significant impact on public finances. That is true because it has been defined in that way, but we are setting the rules. We are not being subjected to rules imposed by outside interests. If the Treasury does not have the wit or ingenuity to adjust the rules in a way that would allow for these payments from the PPF, which, in reality, would have no impact whatsoever on public expenditure, those who have been affected by the lack of increases will draw their own conclusions as to what the Government really want to do. My noble friend also said that this is a compensation scheme and that it was never designed to offer full redress. Well, that is what we are debating; it is exactly what we are saying is wrong and should be rectified.

The point that I wish to emphasise in this section is the need for urgency. That is why this amendment is the important one. To be brutal, we are dealing with a declining population. It has been estimated that more than 5,000 pensioners with pre-1997 rights are dying each year. We have to take action. Even my amendment, which I proposed to bring the pension up to its current real value, does not address the issue for these people because many of them will not be here. Compensation via lump-sum payments, along the lines suggested in these amendments, are, I believe, the way in which this problem should be addressed. I strongly support these amendments.

[Lord Palmer of Childs Hill (LD)]

My Lords, I will briefly speak in support of the amendments. I emphasise that they look at how to do this by lump-sum payments, rather than by increasing pensions. That is important. It is what we in my profession used to call “creative accountancy”. It seeks to achieve a result by lump sums, more or less off the Government’s balance sheet. There has been some blending of the funds in the past. It is a way of doing it in a creative accountancy way, largely getting rid of the problem by lump-sum payments. I hope that the Government will look at this in a creative way in order to provide some justice without incurring an ongoing debt.

[Viscount Younger of Leckie (Con)]

My Lords, I will speak to Amendments 187A, 188A, 189A and 203ZA tabled by the noble Baroness, Lady Altmann. She has long been a formidable and principled advocate for pension savers and much of the Committee will be sympathetic to the underlying concerns that she raised in her remarks. In particular, her consistent focus on member protection, governance and long-term security has materially shaped the debate on pensions policy over many years—and rightly so.

However—the Committee might expect me to say this—while I share the noble Baroness’s objectives, I am not persuaded that the amendments, as drafted, strike the right balance in this instance. I listened carefully to her remarks and her constructive suggestions as to how such payments could be made in the form of lump sums, whether through several lump sums or another way. As ever, she is constructive and positive, and I accept that. These amendments would use the Pension Protection Fund and the Financial Assistance Scheme to make retrospective lump-sum payments to compensate for unpaid historical indexation. We think that that would represent a significant shift in principle.

I listened carefully, as I always do, to the remarks from the noble Lord, Lord Davies of Brixton, who called retrospection a red herring. I was not absolutely sure what he meant by that. As I see it, retrospection is just that: retrospection. I think that it describes the payments in the way that it is meant to do. However, the PPF was designed as a forward-looking safety net, not as a mechanism for reopening past outcomes or making retrospective compensation payments. The Minister, to be fair to her, made this clear in her closing remarks in previous groups.

Such an approach would raise serious concerns about cost, complexity and consistency. Although we are somewhat clearer about costs from the helpful remarks from the Minister in the previous group, I am still uncertain—as, I think, other Members of the Committee are—about what the overall costs would be and what the impact would be on the levy and on other contributors. That uncertainty makes me cautious about supporting these amendments, which risk turning a clearly defined insurance mechanism into an open-ended compensation scheme. I suspect that the Minister—without wanting to steal her thunder—may take a similar view in her response, judging from her remarks in the previous group.

--- Later in debate ---

[Baroness Bowles of Berkhamsted (LD)]

I welcome the noble Lord, Lord Pitt-Watson, to the Committee. His comments have inspired me to make a very small intervention. It is true that there is a lot of index investment, and inevitably that will capture things inadvertently, but there are now many more indices that will be socially responsible or environmentally responsible, and trustees can choose to use them.

If pension trustees collectively and pension funds made a little more noise and made more approaches to the index providers, we may well get indices that are more pushy in what they do for social and environmental protection. Ultimately, most of the time they are paid to invent an index or they are doing it for their own platforms, but I see an open door there to apply pressure.

[Lord Palmer of Childs Hill (LD)]

My Lords, I welcome the contribution of the noble Lord, Lord Pitt-Watson—may there be many in the future. In coming to the Moses Room for the pensions Bill debate, I never thought that I would have to declare an interest, but according to the Companion I need to say that I am the president of the Liberal Democrat Friends of Israel. I need to put that on the record because of what has been said.

I understand where we are coming from, but the trouble is that in the modern world, investments are global. You do not necessarily have one cup being manufactured in the UK or in the countries mentioned by noble Lords. Very often, you have bits of equipment manufactured here, in Israel, in America and elsewhere. I give the F35 aircraft as an example: the parts are assembled from all parts of the world. It becomes a global thing, and it is difficult in the global economy to identify where something is manufactured or whatever.

The point at issue—it is a good point—is that trustees have to make the decision. They will take into account all the points made by the noble Lord, Lord Hendy, and my noble friend Lady Janke, but at the end of the day they have a fiduciary responsibility to their members. This is not the first time this has happened. Hertfordshire very recently had an amendment to divest from one country. It was passed on the chairman’s vote. What happened? It went back to the pensions committee of Hertfordshire County Council, which decided that its fiduciary duty was not to make political statements but to look after the investments under its control. Whether it is Myanmar, Israel, China or Russia, it is a very slippery slope when you do that. So, as people involved in pensions, we have to leave it to the trustees to use their judgment, taking into account all the factors that the noble Lord, Lord Hendy, and others mentioned. It is a fiduciary judgment. Our view is that the fiduciary duty should be robust, not restrictive, focused on long-term member outcomes, informed by real-world risks and clear enough to avoid defensive or overly narrow decision-making. I do not support this amendment.

[Baroness Janke (LD)]

I belatedly state my interest: I am a member of the LGPS. I apologise; I should have said that at the beginning of my speech, so I just put it on the record.