Pension Schemes Bill

Mark Garnier Excerpts

2nd reading
Monday 7th July 2025 Commons Chamber

[Mark Garnier (Wyre Forest) (Con)]

It is a great pleasure to be here with you, Madam Deputy Speaker, and I welcome the Minister to his place. He has been here a couple of days over a year and is already taking an important Bill through Parliament. It is good to see him, and I very much look forward to working constructively with him as the Bill progresses through the House.

While the Bill is not perfect, the Minister will be pleased to hear that there is cross-party consensus on many of the planned changes. That is because we all want our pension system to be working better. If we rewind back to 2010, we inherited from Labour—dare I say it—a private pension system that was not quite ideal. The move from a defined-benefit pension-dominated market to a defined-contribution system had left millions of people behind. Back in 2011, only 42% of people were saving for a workplace pension. The cornerstone of change was auto-enrolment, which has been an overwhelming success, as I am sure the Minister will agree. Now around 88% of eligible employees are saving into a pension, and the remaining 10% who opt out tend to do so because of sound investment advice.

The Conservatives are proud of our rock-solid support in government for our pensioners. The triple lock ensured that we lifted 200,000 pensioners out of absolute poverty over the course of the last Government. Workers deserve dignity in retirement, not just a safety net in old age. They deserve to look forward to their later years with hope, not anxiety, and with choice, not constraint. That is why before the last election, the previous Government had turned their attention to two central issues: first, getting the best value for money out of our pension schemes and, secondly, pensions adequacy. I will come to pensions adequacy later, but let me start by recognising some of the positive measures contained in the Bill to make our pension funds work better for savers.

When Labour gets pensions policy right, it is often by building on the Conservative legacy, recognising what works and seeking to extend it. That is why we broadly support the measures in the Bill that seek to consolidate and strengthen the gains of auto-enrolment. We also welcome the continued progress towards the pensions dashboard, which will revolutionise the way people access their pension information and plan for their financial future.

For too long, the complexity and fragmentation of pension pots has left savers confused and disengaged, as we have heard. If you are anything like me, Madam Deputy Speaker, and are thinking more actively, dare I say it, about your retirement income—actually not like me; you are a lot younger. [Interruption.] Mr Speaker is like me; he is thinking about his pension. He will have spent countless hours trying to track down old pensions. The dashboard, however, will put power back into the hands of savers, and we will support measures in the Bill to improve its implementation and delivery.

I want to highlight the creation of larger megafunds in both the public and private sectors, as well as the consolidation of the local government pension scheme, as sensible and pragmatic steps. The LGPS is one of the largest pension schemes in the UK, as we have heard. It has 6.7 million members with a capital of £391 billion, yet it is highly fragmented into 86 locally administering authorities. There is a great deal of divergence in the funding positions of those councils, even among geographic neighbours. They range from Kensington and Chelsea, which has a scheme funding level of 207%, to neighbouring local authorities like Waltham Forest, Brent, and Havering, which were underfunded in the 2022 triennial review. While we support the concept of these megafunds, there are legitimate questions that I hope the Minister will address in Committee. We do not want to see constituents from one council area unwittingly funding shortfalls from neighbouring areas.

Like many people in this House, I first cut my teeth in politics as a councillor. Soon after being elected, I was appointed chairman of the finance committee on Forest of Dean district council. One of our tasks was to oversee the performance of our local pension fund. Let me assure the House: the Forest of Dean is a truly wonderful place, but it is not the City of London. Our finance committee was made up of dedicated local councillors, but when it came to scrutinising the pension fund, we were—to put it kindly—out of our depth. Meanwhile, the pension fund managers, with their packed diaries and weary expressions, seemed to treat a trip to rural Gloucestershire as a rare expedition to the outer reaches of the Earth.

One thing struck me about small local government pension funds: they simply did not work. But it is not just in local government, small funds are—albeit with some notable exceptions for bespoke funds—not fit for purpose in a global investment environment, as we heard from the Minister. The creation of larger funds will enable greater scale, better investment efficiency and, ultimately, better value for money for members. It will allow our pension funds to compete on the world stage, to invest more in UK infrastructure and to deliver higher returns for British savers.

There are other areas of the Bill that we support and welcome. The consolidation of small, fragmented pension pots is a long-overdue reform. Bringing those together will reduce administrative costs and prevent the erosion of savings through unnecessary fees. The introduction of a value-for-money framework is essential to ensure that savers are getting the best possible deal, not just on charges, but on investment performance and retirement outcomes. We also welcome the development of guided retirement products. We cannot simply leave savers on their own to navigate complex choices at retirement. Changes to provide greater support for those facing terminal illness will provide comfort to those in extremely challenging circumstances. These are all positive steps, and we will work constructively with the Government to ensure they are delivered effectively.

While there is much to welcome, there are also significant areas where the Bill falls short and areas that require attention if we are to deliver a pensions system that is truly fit for the future. Most fundamentally, the Bill does not address pensions adequacy. The uncomfortable truth is that millions of people in this country are simply not saving enough for their retirement. The amounts people are saving, even with auto-enrolment, are too low to deliver a decent standard of living in old age. Research by Pensions UK shows that more than 50% of savers will fail to meet the retirement income targets set by the 2005 pensions commission. Closing the gap between what people are saving and what they will need must be the pressing concern of this Government. We urgently need the second part of the pensions review to be fast-tracked, with a laser-like focus on pensions adequacy. We need a bold, ambitious plan to ensure that every worker in this country can look forward to a retirement free from poverty and insecurity.

[Dame Meg Hillier]

The hon. Gentleman is not wrong on this point. In fact, the Public Accounts Committee looked a number of years ago at enrolment in pension schemes and found that a lot of young people were not enrolling because of the cost of living, which his Government have to take responsibility for. There is no easy answer to this, but I would be interested to know if the Conservative party now have policies to resolve this problem.

[Mark Garnier]

It is an important question, and one that I will come to in due course. Watch this space for a fascinating manifesto in the run-up to the next general election—I am sure everybody looks forward to it.

[John Glen]

Further to the point made by the hon. Member for Hackney South and Shoreditch (Dame Meg Hillier), in every election we all say that we cherish the triple lock, and we seek to gain electoral advantage from it, but do we not need to come to a settled collective view in society about the combination of the triple lock and the inadequacy of auto-enrolment? The 8% contribution is not enough, as the hon. Gentleman said; we need to get to Australian levels. One speaks to the other. Unless we can take a holistic view of those two elements and the third pillar, we are not being truly honest about some of the trade-offs, given that we are dealing with £70 billion of tax relief at the moment.

[Mark Garnier]

The former City Minister raises a good and important point. He tries to bring together a number of related but quite disparate issues that we need to think carefully about. I would not want to make Conservative party policy on the hoof at the Dispatch Box, though the Minister urges me to do so. These are important points, and I think my right hon. Friend would understand that I would not want to rush into anything without careful, considered thought. These are issues on which he and I—and the Minister, of course—might get together.

As I said, we need a bold, ambitious plan to ensure that every worker in this country can look forward to a retirement free from poverty and insecurity. That means looking again at contribution rates, the role of employers and how we support those who are excluded from the system.

Another omission in the Bill is the failure to extend the benefits of auto-enrolment to the self-employed. There are over 4 million self-employed people in the UK—people who are driving our economy, creating jobs and taking risks. Too many of them face the prospect of old age in poverty, with little or no private pension provision. Research by the Institute for Fiscal Studies found that only 20% of self-employed workers earning over £10,000 a year save into a private pension. With the self-employed sector continuing to grow, the Bill misses an opportunity to come up with innovative solutions for this underserved group in the workplace.

[Kirsty Blackman]

On auto-enrolment, the other missing group is those aged under 22. Auto-enrolment seemed to be set up with the view that people would go to university before entering the jobs market, but that is not the case for many people. It is possible that starting auto-enrolment earlier would mean much more adequate pension pots for people, because the earlier they save, the bigger their pot grows by the time they reach retirement.

[Mark Garnier]

The hon. Member makes an important point. The earlier people start putting money in, the better. As a result of compound interest, over many years they will end up with a bigger pension pot, even if at the beginning the contribution is quite small; the amount aggregates over a long period. We will discuss that in Committee.

We are concerned about the lack of detail in the Bill. Too much is left to the discretion of regulators and to secondary legislation. Parliament deserves to have proper oversight of these reforms. From my discussions with the industry, it seems there is tentative support for many of the reforms in the Bill. However, the message that keeps coming back is that the devil will be in the detail, so I hope that as this Bill makes progress through the House, the Minister will be able to fill in more of the blanks—and I am sure he will; he is a diligent individual.

I move on to the most important thing that this Bill hopes to achieve: growth. We want to support Labour Members on the growth agenda, but too often they go about it in slightly the wrong way. Surpluses in defined-benefit pension schemes are a great example. Interest rates have risen post-covid, and that has pushed many schemes into surplus. In principle, we support greater flexibility when it comes to the extraction of these surpluses, but there need to be robust safeguards; that is certainly the message coming back from the industry.

Under the legislation, there is nothing to stop these surpluses being used for share buy-backs or dividend payments from the host employer, for instance. Neither of these outcomes necessarily help the Government’s growth agenda. We would welcome a strengthening of the Bill to prevent trustees from facing undue pressure from host employers to release funds for non-growth purposes. In addition, to provide stability, the Government should carefully consider whether low dependency, rather than buy-out levels, will future-proof the funds, so that they do not fall back into deficit.

Although the Government are keen to extract surpluses from the private sector, there is not the same gusto shown in the Bill when it comes to local government pensions. The House has discussed in detail the Chancellor’s fiscal rules, not least earlier today. Under the revised rules introduced by the Chancellor, the measure of public debt has shifted from public sector net debt to public sector net financial liabilities. As a consequence, the local government pension scheme’s record £45 billion surplus is now counted as an asset that offsets Government debt. This gives the Chancellor greater headroom to meet her fiscal targets—headroom that, dare I say it, is shrinking week by week. I do not wish to sound cynical, but perhaps that is the reason why the Bill is largely silent on better using these surpluses. This may be a convenient accounting trick for the Chancellor, but the surpluses could have been used, for instance, to give councils pension scheme payment holidays. The Government could make it easier to follow the example set by Kensington and Chelsea, which has suspended employer pension contributions for a year to fund support to victims and survivors of the 2017 Grenfell Tower tragedy. These revenue windfalls could be redirected towards a range of initiatives, from local growth opportunities such as business incubators to improving our high streets. We could even leave more money in council tax payers’ pockets.

I turn to the part of the Bill on which we have our most fundamental disagreement: the provisions on mandation. The Bill reserves the power to mandate pension funds to invest in Government priorities. That not only goes against trustees’ fiduciary duties—although I appreciate and recognise the point the Minister made earlier—but means potentially worse outcomes for savers. Pensions are not just numbers on a spreadsheet; they represent a lifetime of work, sacrifice, and hope for a secure future. The people who manage these funds and their trustees are under a legal duty to prioritise the financial wellbeing of savers. Their job is not to obey political whims, but to invest prudently, grow pension pots and uphold the trust placed in them by millions of ordinary people.

That fiduciary duty is not a technicality; it is the bedrock of confidence that the entire pension system rests on. These pension fund managers find the safest and best investments for our pensions, no matter where in the world they might be. If things go wrong, we can hold them to account. But if this reserve power becomes law, we have to ask the question: if investments go wrong, who carries the can? Will it be the pension fund manager and the trustees, or the Government, who did the mandation?

Likewise, while the reserve power in the Bill focuses on the defined-contribution market, the shift in emphasis has potentially profound impacts across the sector. UK pension funds, along with insurance companies, hold approximately 30% of the UK Government’s debt or gilt market. If mature defined-benefit schemes move from the gilt market to equities, that potentially has a profound impact on the Government’s debt management, or ability to manage debt, and therefore interest rates and mortgage rates. For that reason, we would welcome the Minister confirming whether any concerns have been raised by the Debt Management Office, and possibly the Bank of England. There is widespread opposition from across the industry to this power—I am approaching the end of my speech, you will be pleased to hear, Madam Deputy Speaker. There are better ways for the Government to deliver growth, such as changing obsolete rules and removing restrictions.

In the annuity market, solvency rules prevent insurers from owning equity in productive UK assets. Wind farms, for example, deliver stable returns through contracts for difference and contribute to the Government’s green agenda. They could be an ideal match for long-term annuity investments, while also delivering clean energy. Releasing the limits on the ability of insurers to fully deploy annuity capital has the potential to unlock as much as £700 billion by 2035, according to research by Aviva. Rather than imposing top-down mandates, we want the Government to maximise growth opportunities from our pension industry by turning over every stone and seeking out the unintended consequences of old regulations, not imposing new ones.

I will conclude, Madam Deputy Speaker, as you will be delighted to hear. [Interruption.] Yes, I have taken a lot of interventions. We reaffirm our commitment to working constructively with the Government. Stability in the markets is of paramount importance, and we recognise the need for a collaborative approach as the Bill progresses through the House. We will bring forward amendments where we believe improvements can be made, and we will engage in good faith with Ministers and officials to get the detail right.

We want to go with, not against, the grain of what the Government are seeking to achieve through this Bill, and I look forward to working with the Minister in the weeks and months ahead.

[Madam Deputy Speaker (Ms Nusrat Ghani)]

I call Chair of the Select Committee, Debbie Abrahams, after whom I will call Steve Darling.