Pension Schemes Bill (Fifth sitting)

Peter Bedford Excerpts

Committee stage
Tuesday 9th September 2025 Public Bill Committees

[Mark Garnier]

I will speak to our new clause 36. I am grateful to the Minister for his comments; I will come to those in a minute. The Government dropped plans for the lifetime provider or “pot for life” model, which would have allowed individuals to direct all workplace pension contributions into a single, personally chosen pension pot throughout their career. That was first proposed by the Conservative Government. Although we appreciate that the initial lifetime pot model has not had support from the current Government or, to be fair, from the industry, we believe there is much merit in exploring a model that would allow for pensions to follow individuals between jobs. The new clause would ensure that fragmented small pots are not left as workers move between jobs. By changing our current proposals from a lifetime pot to a magnetic pot proposal where the pot follows the individual, we hope we can bring down some of the administrative costs of the initial lifetime pot proposal.

Our new clause 36 will provide for a pension pot that would follow members from job to job, consolidating with each new workplace scheme rather than relying on a single lifetime provider. This approach could reduce fragmentation while retaining the advantages of employer oversight and collective governance. This would have similarities with the Australian system, where a person can staple to their first chosen pension provider so that it follows them from job to job. That helps to reduce the administrative burden on individuals and the number of small pots, and that can reduce costs for consumers and help the overall consolidation of the market. These changes have been backed by some in the industry, including Hargreaves Lansdown, which has said that having a single pot would simplify someone’s pension investment, bringing transparency and clarity. It has said that for those who move jobs frequently, a single pension pot would be invaluable.

The Minister made a couple of points. The first was about the substantial overhaul of the system to be able to deliver reform. Although I appreciate that this may be outside the scope of the Bill, we should not worry about substantial overhauls to make things better for people who are saving for their retirement. It is incredibly important that we get this right. Just because it is a lot of work does not necessarily mean it is a bad thing to do, so I urge him to think about it.

The Minister made a very important point: somebody could move from one job to another and find that their pension moves from a fund that offers good value for money and is performing well to a fund that is performing worse. But exactly the opposite is also the case. If somebody frequently changes jobs, the law of averages and statistics means that over their lifetime they will get the average rate, which means they do not get stuck in one or the other. One would cancel the other out—it is a maths problem.

The Minister has made his points. This is not something we want to press, but we feel very strongly that the Treasury and Treasury Ministers should think very carefully about it, because, as I say, hard work is not a reason not to do the right thing. There is much more support from the industry for the magnetic pot rather than the lifetime pot, which stays with one provider.

[Mr Peter Bedford (Mid Leicestershire) (Con)]

It is a pleasure to serve under your chairmanship, Ms McVey. As a proud Englishman, it is not often that I admit the Australians are better than us at something. I am talking not about cricket, but about the immensely important issue of pensions adequacy. The Australians do it better, and what underpins their success is the super stapling model, a system that fundamentally changes how savers interact with their pensions. That is why our new clause 36 seeks to follow in Australian footsteps by establishing a model that would automatically amalgamate pension pots through an individual’s working life. Although I recognise and commend the Government’s work on small pot consolidation, I believe that real engagement and adequacy benefit lies in moving towards a lifetime pension pot model. It is a bolder, more engaging and more adequate model that would benefit pension funds and savers alike.

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[Torsten Bell]

I thank hon. Members for their reflections. I agree with the sentiment of what everybody has put forward, including the hon. Member for Mid Leicestershire—apart from his worryingly weak patriotism.

[Mr Bedford]

Outrageous!

[Torsten Bell]

It was self-professed weak patriotism. But the hon. Gentleman is completely right to raise the adequacy issue, which is obviously the role of the Pensions Commission, launched in July, to take forward. He and several others are also right to say that making things easier for savers is a really important objective. That is what the pensions dashboard aims to do in the coming years as well.

Let me make a set of reflections directly on the question being raised. To be clear, the policy in 2014 was “pot follows member”. That is also the policy within new clause 36. The policy being more supported here is a lifetime pot, which is a different policy. The “pot follows member” is still that the employer chooses the pension scheme and the pot moves to the new employer’s scheme as the employee goes, so it is still an employer-to-a-single-scheme model. The lifetime provider model, also advocated by many in the industry but never part of Government policy—it was not in the 2014 Act—is that each individual holds a pension pot, and, on joining an employer, provides the details of that scheme to the employer, and the employer then pays to multiple pension schemes whenever it does its PAYE.

The comments I made refer to the “pot follows member” approach. There is a consensus across the industry that that is not the right way to go; I totally hear the points made in favour of a lifetime provider model. That is not the approach being taken forward by this Bill, but it needs to be kept under review in the longer term. I give hon. Members the reassurance that I will continue to do that.

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[Kirsty Blackman]

Although I am delighted by the intention of the hon. Member for Wyre Forest to get one over Reform with amendment 275, and I am quite happy to back that notion, I am also pretty happy with nationalised water in Scotland. Scottish Water is significantly better performing than the other water companies, so I would not automatically say that nationalised water is a bad thing, given that our water is lovely in Scotland. However, we could do with a little more rain on the north-east coast, given that we have had the driest spring and summer for 40 years, which is not ideal. I gently disagree with the hon. Member because the amendment does not take into account the Scottish context. I would love to see more investment in Scottish Water from pension funds or from Government-led investment vehicles or decision making.

On amendments 248 and 249, I am much more relaxed about mandation than the Conservatives are, as Members might expect given my ideological position. I have much less of an issue with going in that direction. I have heard all the Government have said about not planning to use those powers. It is reasonable for the Government to direct the economy in certain directions—that is what tax and Government spend are for. A good chunk of that is about ensuring that we make interventions so that the economy grows in the way that we want it to.

In many cases, Governments have historically refrained from picking winners when a decision to do so could have grown the economy faster. For example, historically, the Government could have given more backing to certain ports to ensure that they could grow, particularly through renewable energy or by building offshore wind farms, because we could do with more local capacity throughout the UK. Had Governments of all colours been clearer about which areas and regions they were backing, that understanding could have enabled those areas to win more contracts.

On new clause 4, the options for how mandation could work and the investment vehicles that are in place, I have talked about affordable and social housing development. The biggest thing the Government could do to encourage social housing, in particular, is to cancel the right to buy, which would allow local authorities to build significant levels of social housing. That is how we are managing to increase our housing stock in Scotland. We are not there yet—nobody says that we are—but we are able to build new social housing in Scotland at a scale that most local authorities south of the border are not, because cancelling the right to buy has made it affordable. I would love to see more investment in social housing.

I would have liked renewable energy to be included in the Lib Dems’ new clause 4. I appreciate that we cannot include everything, but it would have been nice, particularly when it comes to smaller renewable energy projects and in combined heat and power initiatives. Large-scale CHP makes a really positive difference in Aberdeen city. We have a large combined heat and power network, which heats a significant number of our multi-storey blocks at far lower prices. They are still seeing an increase in prices, absolutely, but they do not need to worry about putting money in the meter, because they know they will have hot water and heating for a fixed monthly fee, rather than paying more in winter and less in summer.

Lastly, harking back to the Future Generations Commissioner for Wales, it would be interesting for the Government to consider whether any potential mandation benefits future generations, given the intergenerational gap and given that people my age and younger are increasingly of the view that we will never get a state pension, because it will simply not exist by the time we reach retirement age—I am sorry if not everybody is at that level of cynicism, but most people my age and younger are. Looking at where our private pensions are invested and at the Government’s direction of travel, it would at least be an interesting thought exercise, in advance of any Government decision on mandation, to consider whether that money would benefit future generations or make things worse for them. In Wales, decisions can be called in for judicial review, should a public authority act against the wellbeing of future generations.

Looking at whether investments that could be directed by the Government would benefit or have a detrimental impact on future generations would be an interesting way to tie the Government’s hands. That way, we could see investment not simply in massive motorways, High Speed 2 or dual carriageways, but in things that have a demonstrable benefit, or at least no adverse impact, on the wellbeing of future generations. Surely that should be a positive thing for us all, given our huge responsibilities for the future of the planet and to those who will be living on these islands. Requiring that to be considered when the Government look at mandation could be a great way to do it.

I am not sure what I will do when we come to new clause 4—it will be voted on at the very end because it is a new clause. I like the idea, but I am not convinced that I would go down that exact route. I will not be supporting the Conservative amendments in this group, which I understand the shadow Minister is terribly shocked about, but there are places where we can have significant ideological disagreements, and this is definitely one of them.

[Mr Bedford]

I refer the Committee to my entry in the Register of Members’ Financial Interests, having worked in the water sector before being elected to Parliament. I will be speaking predominantly to amendment 248. The Committee heard evidence from industry experts who expressed concerns about the Bill’s mandation power. They were consistent and clear in raising concerns about the reserve powers in the Bill. I would like to reiterate some of those concerns raised by the industry, which I believe hon. Members should support today.

At the heart of clause 38 is its impact on the fiduciary duty of trustees—not just a mere technicality, but a duty that has been at the heart of trust-based governance for centuries. Trustees have a legal duty to act solely in the best interests of their members. However, the Government believe it is acceptable to tear up that duty through a ministerial power grab. If the Bill is passed in its current form, Ministers will have the power to override the judgment of trustees, which I do not believe is appropriate. That is not to guide or support, but to mandate them—to potentially force them to act against what are arguably the best interests and returns for their members.

That leads me to the potential impact on pensions adequacy in the UK. We are facing a pensions adequacy crisis, as I and other members of this Committee have said before. The majority of people are not saving anywhere near enough for retirement, and the cost to the state pension will only continue to rise, yet we have seen that the Government are willing to take investment decisions out of the hands of pension fund trustees.

[David Pinto-Duschinsky (Hendon) (Lab)]

As the Minister has previously said, there will be a savers’ interest test. There will be a series of safeguards, including the fact that if the Government want to exercise the power, they will have to file a report. This is a power ringfenced with safeguards. What Opposition Members have not said is what they would do instead to raise the returns of the pension market, because that is the issue. The hon. Member for Mid Leicestershire is exactly right that there is not enough pension saving, but that is exactly because we are not seeing those returns. If not this power, what would the Opposition do instead to raise investment levels?

[Mr Bedford]

I will come on to some of those points later, so I will address them then.

[Mark Garnier]

This is rather strange, because I wanted to intervene on the intervention, but I hope that my hon. Friend will come on to the various other things that we have proposed. For example, we have proposed looking at the Maxwell rules, which are driving the incentive of pension fund trustees to invest in gilts because of the implications of volatile markets for balance sheets. We are trying to look at the wider regulation that is driving certain behaviour, and I hope that my hon. Friend will raise that in due course. We are 100% behind the Bill—not every single part of it, although the thrust is very good—but, as my hon. Friend will mention, there are areas that could be changed to achieve its aims.

[Mr Bedford]

I hope to address some of those points.

The Government are willing to take investment decisions out of the hands of pension fund trustees to force investments into projects that may be politically convenient for them, but may potentially lead to financial loss for members. They are directing investment on the backs of ordinary UK savers. When people save into a pension scheme, they are entrusting their future security to a system that is working supposedly for them and not for political gain. To answer the point made by the hon. Member for Hendon, rather than coercing trustees to follow conditions set by Ministers, would it not be better to create the right economic conditions to make trustees want to invest in the UK?

The last Conservative Government, through their Mansion House reforms and the work of my right hon. Friend the Member for Godalming and Ash, brought in active commitment from the pension fund trustees who want to invest. We did not need to mandate that, and the Government should learn from that approach. Amendment 248 will preserve the fiduciary duty, but continue the trajectory to increase pension fund investment in the UK.

[John Grady (Glasgow East) (Lab)]

Would the hon. Member accept that pension trustees should, in accordance with their fiduciary duties, actively consider investing in such things as private equity, private patient capital and interests in land? The fact that so many people have agreed, under the Mansion House arrangements, to invest in such classes of assets, which have grown exponentially in scope over the last 25 years, makes the basic point that they will yield much better returns for my constituents. The thrust is simply to get better returns for pension savers in the United Kingdom.

[Mr Bedford]

I trust the pensions industry to make those judgments because they are the experts in this area, not Government Ministers, who often have short-term views. On Second Reading, one of my hon. Friends raised the example of HS2 and how Government priorities and policies can change over time. Would the hon. Member be happy for his constituents to have their money invested in a Government project or a large infrastructure scheme that is then scrapped, and to see huge losses to their pension scheme? I have huge concerns about the mandation point.

Clause 38, in its current form, undermines the trust that I mentioned earlier. I therefore urge hon. Members to back our amendment to ensure that the fiduciary duty remains and that we protect the security of millions of savers.

[Kirsty Blackman]

I corrected the Minister the other day on the definition of fiduciary duty, and the hon. Member for Mid Leicestershire just made a similar error. The fiduciary duty is not to act in the best interests of scheme members but to act in the best interests of getting them the pensions they were promised, or of growing their pensions. It is not necessarily about their best interests; it is about the best interests of their pension and the size of it.

We spoke about this quite a lot in relation to the local government pension scheme. There could be investments that make a person’s life significantly better than having an extra fiver a year in their pension. These are two different things. I appreciate that fiduciary duties should be what they are—I am not arguing with that; I am saying that the definition is not about acting in the best interests of scheme members but simply about growing their pension pots.

In terms of the two Lib Dem amendments and the points made about the investability of projects, we could argue about chickens and eggs and what will come first: will it be the economy growing in order that pension funds can find more investable projects, or will it be a pipeline of projects ready for funds to invest in, which is what the witnesses giving evidence last Tuesday suggested they need? If the Government are clear, not necessarily that they will include mandation but that there is a stick at the end of the process if the carrots do not work, confidence in that pipeline will grow in order for those projects to be there. I would love those projects to include what the Liberal Democrats are suggesting—housing and regeneration of town centres, for example—as well as investment in renewable energy and an increase in energy efficiency measures.