Pension Schemes Bill

Lord Palmer of Childs Hill Excerpts

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.

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[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.

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[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.