Pension Schemes Bill (Sixth sitting)

Mark Garnier Excerpts

Committee stage
Tuesday 9th September 2025 Public Bill Committees

[Torsten Bell]

I will start with the Government amendments and then turn to new clause 32. The amendments relate to proposed new section 28C and specify more detail about the role of the regulator in over- seeing the granting and withdrawal of approvals under this section, including a penalty-making power where a provider does not comply with the relevant requirements, and a clarification to ensure that subsection (14) on the interaction of these provisions with scheme documentation operates as intended.

New clause 32 would require the Secretary of State to conduct an impact assessment—and I appreciate, as I am sure the Opposition will come to shortly, that it is an impact assessment for a particular purpose—before implementing any regulatory or policy change for defined-benefit schemes’ asset allocation. First, let me reassure the hon. Member for Wyre Forest that the Government have no plans to make such changes to defined-benefit schemes’ asset allocation. I reiterate that the reserved powers contained in the clause only relate to defined-contribution workplace schemes. There are no plans to change defined-benefit asset allocations through the Bill. Therefore, the new clause is not considered necessary, and I encourage the hon. Member not to press it. I am sure he will want to make some wider points about the changes in asset allocation within defined-benefit schemes, and their impact on the wider economy.

[Mark Garnier (Wyre Forest) (Con)]

I rise to speak to new clause 32, which looks at the effects of some of the changes on the UK gilt market. Defined-benefit pension schemes are major holders of UK Government bonds, with pension funds holding around 28% of the gilt market —the UK Government bond market—as of early 2022. Those investments provide stable, long-term funding for the UK Government and are essential to the functioning of the debt market.

Significant shift by DB schemes away from gilts and into equities—which, in itself, is not a bad thing, as long as it does not happen in a disorganised way, which could be prompted by policy changes—may reduce the demand for gilts, potentially increasing yields and destabilising the market. At the end of the day, if 28% of the ownership of the gilt market is taken away, somebody else needs to be found to buy it. Otherwise, there will be a falling market. We all know what a gilt crisis looks like for pension funds. The 2022 gilt crisis highlighted the market’s vulnerability to large and sudden sales by pension funds, which triggered a fire-sale spiral and required Bank of England intervention to stabilise prices. It was not a good day. The Debt Management Office and market experts have noted that the gilt market is highly reliant on pension fund investment, and any structural reduction in demand could impact Government borrowing costs and market stability.

The Office for Budget Responsibility has highlighted concern about the impact of a low gilt allocation scenario, which is likely if the Bill achieves the outcomes that the Government want. A low gilt allocation scenario would mean that pension sector allocation of gilt holdings would drop to 10% of GDP by around 2040, down from around 30% today. That in itself, all other things being equal, would result in an extra £22 billion of debt interest payments on the current gilt market. We are highly concerned that a wholesale move from the gilt market by the pension industry places even more burden on the Treasury to manage debt payment. As the deficit continues to grow, the Government must have laser focus on the impact on the gilt market in relation to how they fund Government debt.

The new clause introduces a requirement for an impact assessment before any regulatory or policy changes that could materially alter DB schemes’ asset allocations away from gilt. It should mandate consultation with the Debt Management Office and industry stakeholders to monitor and mitigate risk to market stability. We are not trying to stop the Government persuading pension funds into equities or other alternative investments, but we need a proper conversation with the Debt Management Office about what that means for the cost of Government borrowing, which could potentially be significant.

[Torsten Bell]

I will not speak for long. The hon. Member is absolutely right to say that defined-benefit schemes have been material buyers of gilts over a long period. The market is perhaps deeper and more robust than what some of his remarks might imply. There is a range of participants in our gilt markets. However, I take the point that pension schemes are one of them. Contributions such as those from the Office for Budget Responsibility are valuable in that debate, and I reassure him on two fronts. First, I know that he did not mean it quite like this, but the deficit is not growing this year; in fact, it is falling by around 1% of GDP, marking us out from some other countries. Secondly, he is absolutely right to say that the DMO should and does engage with market participants across a wide range of matters. However, on that basis, and on the basis that the Bill does not envisage changes in DB schemes’ asset allocations, I ask him to withdraw the new clause.

Amendment 98 agreed to.

--- Later in debate ---

[Torsten Bell]

This group of amendments deals with the transition pathway relief, which we touched on earlier in the context of support for innovation within the pension landscape.

First, amendments 108 and 109 amend proposed new section 28D so that, to be approved on the transition pathway, a master trust or group personal pension scheme respectively must produce a credible plan for meeting the scale requirements, before the end of the pathway. I should clarify what I said earlier, sorry—this is the transition pathway; we are not talking about the new entrant pathway.

In addition, via amendment 131, we are inserting new subsection (15A) into clause 38, to ensure that the pathway will expire five years after the scale requirements come into force. We accept that in certain circumstances schemes may need more time to reach scale, but we want the end destination—going back to our conversation about scale and certainty that scale will be achieved—to be clear. I commend these minor amendments to the Committee.

[Mark Garnier]

I thank the Minister for talking through the amendments. We understand the intention behind them, but we are worried that, as can often be the case, there may be an unintended consequence: the creation of a closed shop for master trusts. We do not want suddenly to find that, in trying to make a transition pathway, we end up making things more difficult because it has been interpreted in the wrong way. We are minded to oppose the amendments, but perhaps the Minister could instead give us his thoughts on how we can ensure that they do not get used the wrong way and that we do not end up with a closed shop of master trusts.

[Steve Darling (Torbay) (LD)]

I echo what the shadow Minister has just highlighted. We all want the reform that the Bill introduces, but we do not want what results from this process to be set up forever, with a lack of opportunity for change; I will talk a little further about that when we come to new clause 3. Some reassurance from the Minister that there is an opportunity for new entrants and innovation would be extremely welcome.

[Torsten Bell]

I apologise for my slip of the tongue at the start of my speech. This group of amendments deals with transition pathway relief. Here, in many cases we are talking about existing schemes that may not meet the £25 billion threshold, but which have a plausible path to that scale requirement over the following five years—I think that is a point of consensus across the Committee. That is what we are engaging with here. It is a reasonable approach to avoid a cliff edge, for exactly the reason that the shadow Minister set out.

[Mark Garnier]

I completely understand that. The question is, what is plausible? One man’s plausible might be another man’s impossible. That is the bit that we are worried about: how to ensure that someone is not squeezed out who otherwise could be in it.

[Torsten Bell]

I completely recognise that. Let me say a few words about how we have tried to balance those tests. We want to see the industry get to scale, and we want clarity about what the end point is, but we want to provide a pragmatic approach to how we get there. Balancing that is what drove us to the five-year approach, which is different from some of the earlier discussions in the pensions investment review about an earlier, harder deadline of 2030.

Within the Bill there is flexibility for regulators where people are just approaching the deadline or in other situations, to avoid difficult situations where people’s authorisation is put into question at short notice. That is important, but so is providing the clarity that they will be required to get to scale. It cannot be a never, never. It needs to be a pathway to a destination; it cannot just be a hope.

I think that we have taken a pragmatic, balanced approach, but I appreciate that others will have their views. There will be those in the industry who will worry that they may not be on track to meet those scale requirements, but that is in the nature of the beast of our saying that the industry needs to change. I appreciate that that will mean some change for some organisations. We have tried to be flexible and to take a pragmatic approach.

Amendment 108 agreed to.

Amendments made: 109, in clause 38, page 43, line 28, at end insert—

“, and

(b) has a credible plan in place for meeting the scale requirement within the meaning of section 28B(2).”

This amendment makes it a condition of approval for transition pathway relief that a group person pension scheme has a credible plan in place for meeting the scale requirement.

Amendment 110, in clause 38, page 43, line 33, leave out “authorisation” and insert “approval”.

This amendment is to ensure that new section 28D of the Pensions Act 2008 refers correctly to an approval under new section 28A or 28B of that Act.

Amendment 111, in clause 38, page 44, line 15, after “20(1A)” insert “or section 26(7C)(c)”.—(Torsten Bell.)

This amendment corrects an omission so that new section 28E of the Pensions Act 2008 works effectively for group personal pension schemes.

--- Later in debate ---

[Sarah Edwards]

On that basis, I am happy to beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Mark Garnier]

I beg to move amendment 257, in clause 41, page 53, line 7, at end insert—

“117GA FCA guidance

(1) The FCA must issue guidance on contractual overrides.

(2) Guidance on contractual overrides must include—

(a) when and how overrides can be used;

(b) how to demonstrate transfers are always in members’ best interests; and

(c) how contractual overrides are independently certified.”

Amendments 255, 256 and 257 ensure that contractual override powers are operational in advance of the first value for money assessments.

The amendment is very similar to amendment 278, which was tabled by the hon. Member for Tamworth. The industry has highlighted to us a concern that the Government’s proposed sequencing will not provide enough time between contractual overrides becoming permissible and VFM assessments being conducted, which will totally undermine the effectiveness of consolidation and value improvement. Pensions UK has encouraged the Government to accelerate that and to bring forward the implementation to allow schemes to make progress on consolidation sooner, so that the override is in place well in advance of the VFM framework.

We drafted amendment 257 with the idea that if transfers took place before the VFM framework was implemented, further guidance from the FCA would be required on how and when overrides could be used. However, we welcome the compromise set out in amendment 278, which would ensure that external transfers do not take place until VFM assessments are available. Frankly, that amendment is better-crafted than ours. If we had done them the other way around, I would have deferred to the advice of the hon. Member for Tamworth on whether she wanted to move the amendment. She was right to withdraw her amendment, and we will withdraw ours, but I urge the Minister to write to us both on the outcome of this matter before Report. It would be useful to have his comments beforehand so that we can challenge him on Report, and possibly move the amendment again—who knows?

[Torsten Bell]

As the hon. Member has asked so kindly, I assure him that I will write to him and to my hon. Friend the Member for Tamworth ahead of Report.

[Mark Garnier]

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendments made: 143, in clause 41, page 53, line 8, leave out “Powers to make” and insert “Treasury”.

This amendment is consequential on Amendment 144.

Amendment 144, in clause 41, page 53, line 25, at end insert—

“(1A) The Treasury must by regulations require the FCA to include provision of a description specified in the regulations in general rules made in compliance with section 117E(4)(a) (how to determine whether a person is independent), alongside any other provision included in such general rules.

(1B) Regulations under subsection (1A) must in particular require the FCA to include in such general rules provision designed to ensure that the independent person does not have a conflict of interest.”

This amendment requires the Treasury to make regulations about the requirements that need to be met by an independent person appointed under section 117E.

Amendment 145, in clause 41, page 53, line 38, leave out from “benefits”” to end of line 39 and insert

“means money purchase benefits within the meaning of the Pension Schemes Act 1993 (see section 181(1) of that Act) or the Pension Schemes (Northern Ireland) Act 1993 (see section 176(1) of that Act);”.

This amendment is consequential on Amendment 140.

Amendment 146, in clause 41, page 54, line 3, leave out from “scheme”” to end of line 4 and insert

“means a personal pension scheme within the meaning of the Pension Schemes Act 1993 (see section 1(1) of that Act) or the Pension Schemes (Northern Ireland) Act 1993 (see section 1(1) of that Act);”.—(Torsten Bell.)

This amendment is consequential on Amendment 140.

Clause 41, as amended, ordered to stand part of the Bill.

Clause 42

Default pension benefit solutions

[Torsten Bell]

I beg to move amendment 147, in clause 42, page 55, line 9, leave out “eligible members” and insert “each eligible member”.

This amendment clarifies that trustees or managers are required to make a default pension benefit solution available to every eligible member of the scheme.