Pension Schemes Bill

Matt Rodda Excerpts

2nd reading
Monday 7th July 2025 Commons Chamber

[Matt Rodda (Reading Central) (Lab)]

My hon. Friend is making an excellent speech. She has convened a very powerful group—indeed, the former City Minister played an active part in its most recent meeting. Does she agree that this Bill is particularly important for our high streets and many other entrepreneurs in our local communities, to try to find new forms of investment to help them boost business?

[Sarah Edwards]

I thank my hon. Friend for that contribution. It is absolutely essential that we ensure that investment is getting to our high streets and towns, not just our cities, and that people see that change when they walk around.

I urge the Minister to take a supportive approach towards pools that are currently in transition, since they cannot necessarily reallocate assets while they are not members of the new pool that they are going to join. Their investment strategies are therefore effectively on hold until they join the new pool. I also ask him to liaise closely with colleagues in the Ministry of Housing, Communities and Local Government during the process of local government reorganisation. Whatever the new framework is for local government in Staffordshire, the pension fund will still be there. Local authority workers in my Tamworth constituency are part of the Staffordshire LGPS. It is one of eight authorities that are jointly own LGPS Central, which last year reported £29.9 billion in assets under management. The sheer scale of such funds is what underlines the link between pensions and growth.

The British growth partnership, announced in October 2024 by the Chancellor of the Exchequer and the Secretary of State for Business and Trade, sits alongside the British Business Bank, and its primary goal is to stimulate investment from UK pension funds into high-growth, innovative companies, thereby supporting the UK economy and creating new jobs. The partnership aims to raise hundreds of millions of pounds from institutional investors, including pension funds, to invest in UK venture capital. That will be supported by a cornerstone investment from the Government. Investments will be made on a long-term, fully commercial basis, independent of Government influence, leveraging the expertise and market access of the British Business Bank to identify potential companies. That will offer pension funds fruitful investment opportunities that deliver for their members as well as for the British economy.

By unlocking domestic investment, the partnership seeks to enhance the UK’s competitiveness in future industries, particularly in the technology and innovation sectors. I am fortunate that in my constituency I have an innovative technology company called PI-KEM, which has grown its business and workforce over the past 34 years. By linking pension funds to growth, it will be possible to have more such companies creating opportunities for skilled employment that sees Britain at the forefront of markets.

However, there is one area of caution: a trend towards Government finances being pooled into funds of which there is limited parliamentary oversight. While I understand and recognise the power of the larger funding pools, I must raise my concerns over how the funds will be reported on and how we will ensure that both taxpayer and pension member money is stewarded appropriately through the British growth partnership.

As the chair of the all-party parliamentary group on pensions and growth, it has been a great pleasure to meet with colleagues and hear from a variety of industry sectors about where they see the strengths and challenges in these proposals. I take this opportunity to thank the Minister for agreeing to attend a meeting of the APPG to assist us in gaining a greater understanding of the approach that he is taking in the next stages of the discussion of the Bill. I also take this opportunity to invite colleagues to come along and join us on Wednesday.

Chapter 2 in part 1 of the Bill reforms the regime governing trustee payments of surplus to employers and enables surplus to be paid out of more defined-benefit schemes. It is stated that trustee oversight and the regulatory framework will ensure the responsible and secure sharing of surplus funds.

The triennial revaluation of a scheme may determine that there is a deficit or a surplus, but despite being calculated by highly skilled actuaries, both are only a snapshot in time. For example, a scheme being evaluated this spring would have reflected the moment at which the US President’s decision to introduce tariffs hit asset prices. An alternative set of circumstances could have created an apparent surplus. I have been through this process as a trustee, and I have put on record—and must put on record again—my scepticism about whether the potential figure is the true one when it comes to the surplus. I ask the Minister to reassure my constituents, and pension scheme members in general, that he recognises that the interests of scheme members must always be the priority. It would also be welcome to understand how “surplus” is to be defined and calculated, as I have received at least four different versions by canvassing the pensions industry.

In chapter 4 of part 2, provision is made for providers of automatic enrolment and pension schemes regulated by the Financial Conduct Authority to change the way in which a pension pot is invested, to transfer a pot to a different pension scheme with the same provider, or to transfer a pot to another provider without individual member consent where it would be in the best interests of members, taken as a whole. I welcome the fact that the Bill states that a range of safeguards and procedures must be followed before an override or transfer can occur, as sadly, it is often difficult to engage members in the details of their pension. That is particularly true where a number of small pots are accrued early in a working life, which has become the norm in many communities with the rise of insecure work.

As such, I also welcome the efforts that this Government are making to create fair and secure work, because when that is coupled with a well-funded pension, working people are protected not just at work but when they sit on their retirement beach, thinking about how their working career contributed to that welcome rest. Will the Minister ensure that the safeguards are clear and given real prominence in discussion? There is a real need for such fallback powers, but there also needs to be a positive narrative about encouraging engagement.

Chapter 1 of part 2 confers powers on the Secretary of State to make regulations to evaluate and promote the provision of value for money by pension schemes. It will enable defined-contribution occupational schemes to be compared based on the value they provide, rather than just their cost. There is an argument that too high a focus on cost—management fees, for example—has had a detrimental effect on investment by pension funds. This stems from an approach that says that if the employer chooses a fund simply based on cost, the fund may look to minimise that cost, and may achieve that through the tracker funds that have come to characterise much of the market. That is potentially why little investment has occurred in the UK so far. Therefore, by pushing forward on the value for money agenda, the Minister can encourage more investment in the UK, strengthen competition in the sector, and ultimately offer better returns to members.

Chapter 3 of part 2 will require multi-employer DC pension schemes to participate in a default fund of at least £25 billion if they are to be used for automatic enrolment purposes. The aim is to encourage smaller funds to merge into larger ones that are more likely to invest in the productive finances of the UK. I suggest to the Minister that there are two issues here, the first of which relates to the market for assets. In any market, the price of a good rises if there is a shortage of that good. In this instance, the Government are being innovative and asking the pensions industry to invest in productive assets, which can include infrastructure and regeneration schemes that are vital to the places where people live. It is therefore vital that we balance the pace and scale of the development of new profitable investment opportunities with the use of any regulations to push investors in a particular direction.

To use an analogy, the Tamworth is a rare breed of pig. Unless an appropriate opportunity were available to expand supply first, any ministerial direction to buy stock of the Tamworth pig would just result in a spike in its price and poor returns for investors.

[Matt Rodda]

My hon. Friend is making a wonderful speech. May I also say that there is a wonderful pig from Berkshire as well, which has distinctive markings? However, moving away from animals, perhaps my hon. Friend wishes to say a little more about the success of the type of legislation she describes in Canada and Australia. It has delivered real value in those countries’ economies and real value for pension savers.

[Sarah Edwards]

Absolutely. There have been some really interesting changes arising from those countries’ reviews of their pensions markets, and I will be very interested to hear what the Minister has to say about what he has learned from those changes. Certainly, in the meetings that we have attended, we have learned a lot about some of the various initiatives that are driving real growth and real change in those countries.

I urge the Minister to focus on the process of expanding the pipeline of suitable projects, while building on the Chancellor’s success—and, I am sure, his own—in creating a voluntary framework for industry and Government through the Mansion House accord.

--- Later in debate ---

[Callum Anderson]

As I have said, I think that larger funds can manage risk better and deliver better outcomes for savers, which means that they can take greater ownership of how they spend their retirement years. I also think that the £25 billion threshold for megafunds in the defined-contribution market is the right level to deliver the objective. Other jurisdictions, especially Australia, Canada, and the Netherlands, have demonstrated that scale drives better governance, lower fees and stronger returns.

I welcome consolidation and the path towards the professionalisation of the local government pension scheme. I disclose that before I entered this place, I chaired a local authority pension fund, so I know at first hand the potential of pooling, and share many experiences of pension fund meetings with the shadow Minister. I fully acknowledge that there will be resistance to pooling in some quarters.

[Matt Rodda]

My hon. Friend is making an excellent speech. Does he agree that there is a growing consensus in the pensions industry? Indeed, some of the trade bodies have been heavily involved in promoting the idea of consolidation for some time, and perhaps what he is describing is a growing body of opinion in the pensions industry.

[Callum Anderson]

My hon. Friend is absolutely right. Stakeholders and firms that I have spoken to—in the local government pension sector, the private sector and the City of London—are unanimous that scale is very much an economic imperative. Have the Government considered what role fiscal incentives can play in helping to accelerate the consolidation of private DC funds, and whether there is scope to reduce the number of LGPS pools in the year ahead?

I particularly welcome the Bill’s proposal for a comprehensive value-for-money framework to guide DC consolidation, which my hon. Friend the Member for Tamworth (Sarah Edwards) mentioned. This correctly tackles head-on the trustee cost mindset, which too often prioritises the cheapest over the most appropriate asset allocation. That approach has frequently been tried and tested, and it delivers poorer returns for savers and missed opportunities for the wider economy, so I very much hope that DC consolidation can be implemented as soon as possible.

Finally, I want to address the issue of mandation, which, to be honest, probably warrants a debate all by itself. I appreciate the concerns that have been raised by Members from across the House, and by people in the investment industry. My hon. Friend the Member for Hackney South and Shoreditch (Dame Meg Hillier) referred to the parliamentary fund, and I note non-facetiously that the parliamentary fund, of which we are all ultimately beneficiaries, allocates barely 1% of its assets to UK companies.