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.

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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.

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[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.