Pension Schemes Bill (Sixth sitting)

Sarah Edwards Excerpts

Committee stage
Tuesday 9th September 2025 Public Bill Committees

This amendment clarifies that the reporting obligation under subsection (11) applies to the first regulations introducing the substantive asset allocation requirement (rather than to preliminary regulations about procedure and so on).

[Sarah Edwards (Tamworth) (Lab)]

I beg to move amendment 276, to clause 38, page 42, line 41, at end insert—

“(aa) the progress towards the targets set out in the Mansion House Agreement (2025) and the state of the supply pipeline of qualifying assets;”.

To clarify the extent of the review to be conducted before the “mandation” power is deployed.

It is an honour to serve under your chairship, Mr Turner. It may be that the subject of my amendment is already covered or that the Minister may wish to take it away for consideration. I commend the tracked changes document that was shared with us and that has enabled us to read clause 38 with all of its new additions in a much easier format. I implore the House to use that tool in other Committees, because it has made it much easier this afternoon.

The all-party parliamentary group for pensions and growth heard from the pensions industry at the roundtables that it held, and this amendment speaks to a point that I made on Second Reading. It is a clarifying point concerning the Mansion House agreement, which sets out targets and a supply and pipeline of investments to be made available by pension funds to invest into. It is a point of clarification because it is arguably good and noble to channel that investment, but the pipeline needs to be managed to ensure good outcomes for members, whose money will be helping to build these projects. It is about future-proofing the Bill, because as the Minister has said in previous sittings, he may not be our Pensions Minister forever.

In short, the purpose of my amendment is to clarify the extent of the review to be conducted before a mandation power is deployed. It is merely a clarification point for the pensions industry.

[Kirsty Blackman (Aberdeen North) (SNP)]

I rise to support amendment 276. It is similar to some of the points that I brought up earlier, which were also brought up in the oral evidence session, about the consistency and existence of that pipeline and the fact that it needs to be there. Reviewing in advance of a decision being made on mandation would be the sensible thing.

I mentioned earlier the issue with chickens and eggs—which comes first?—and I think the amendment brings more of a focus in primary legislation on ensuring that the pipeline exists in order that these companies and organisations can meet their commitments under the Mansion House agreement. It is all well and good for them to have the Mansion House agreement, but if the opportunities are not there and are not investment-ready, it will be difficult for them to meet those targets. This is a sensible amendment, and I am more than happy to support it.

[Torsten Bell]

Before I come to the detail of the amendment, I should re-emphasise the point made by my hon. Friend the Member for Tamworth about the volume of amendments to clause 38 in particular, which is why I asked for the amended clause with track changes to be circulated to the whole Committee. I hope that Members have found that useful.

Turning to the amendment, I have a lot of sympathy for what my hon. Friend is trying to achieve. It is important that we monitor progress on the Mansion House commitments and continue to stay focused on the strength of the pipeline. There are parts of the Bill that would already facilitate that, including data collection that is consistent with monitoring the Mansion House progress, and the strength of the pipeline, which was obviously relevant to consideration of the saver’s interest test, and thus left in the Bill. I suggest that, given our sympathy with the idea of this amendment but its interactions with several other existing parts of the Bill, we commit to reviewing it with a view to deciding whether we should come back with something similar on Report, if the hon. Lady is content with that.

[Sarah Edwards]

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendments made: 105, in clause 38, page 43, line 7, at end insert—

“(and for that purpose, a provision of the trust deed or rules of the scheme is ‘in conflict’ with provision under this section so far as the former does not allow for the assets of the scheme to be managed in such a way as to meet the conditions for approval under this section)”.

This amendment clarifies the application of section 28C(14).

Amendment 106, in clause 38, page 43, line 8, leave out subsection (15).—(Torsten Bell.)

This amendment is consequential on Amendment 129.

--- Later in debate ---

[Torsten Bell]

We now come to the contractual override part of the Bill. This group of amendments expands the scope of clause 41 to apply to Northern Ireland pension schemes. Just like in Great Britain, many pension scheme members in Northern Ireland will be in arrangements delivering poor value and outcomes. However, due to a lack of engagement from members, there is often little providers can do to address that. Extending these changes to Northern Ireland will help to solve that. These amendments will create better outcomes for pension scheme members in Northern Ireland, and I therefore ask the Committee to support these amendments.

Amendments 143 and 144 add another layer of consumer protection to the already rigorous consumer protections we have included in the Bill. Currently a provider is required to receive certification from an independent person with sufficient expertise that the best interest test has been met. To clarify, that test requires the provider that wishes to use the contract override to carry out an assessment that it is in the interests of scheme members that the override take place. That test then has to be certified by an independent person. This is about strengthening that independent person test. The amendments require the Treasury to make regulations defining “independence” by specifying requirements which must be met by an independent person before they can be appointed, and ensure that the independent person has no conflict of interest. The FCA is then required to include the provisions made by these regulations in its rules. The amendments make an important change to the Bill by ensuring there will be clear rules on who can undertake this important role, and I therefore commend them to the Committee.

Clause 41 inserts proposed new part 7A, on what we call the contractual override mechanism—referred to as a unilateral change—into the Financial Services and Markets Act 2000. This will enable providers of FCA-regulated, defined-contribution workplace pension schemes —note we are talking about FCA-regulated, defined-contribution workplace schemes only—to override the terms of a pension scheme without the consent of members and either transfer members to a different pension scheme, make a change that would otherwise require consent, or vary the terms of members’ contracts, but only when certain clear conditions, including most importantly the best interest test, are met. This will establish broad equivalence with the trust based market, where these changes are already available, so trustees already have these powers within the trust-based market. It will also create better outcomes for consumers, deliver on a long-awaited industry ask, and help drive scale and consolidation within the sector, achieving the consolidation we talked about in relation to the previous clause. It is an important enabler of those changes.

The clause also amends sections 105, 168 and 429 of FSMA to ensure that the contractual override mechanism can work as intended, and to ensure that the appropriate parliamentary procedures apply to regulations that are made under this part, and that amend or repeal primary legislation. I commend the clause to the Committee.

Amendment 140 agreed to.

Amendments made: 141, in clause 41, page 48, line 24, leave out from “member”” to end of line 25 and insert

“means an active member within the meaning of Part 1 of the Pensions Act 2008 (see section 99 of that Act) or Part 1 of the Pensions (2) Act (Northern Ireland) 2008 (c. 13 (N.I.)) (see section 78 of that Act).”

This amendment is consequential on Amendment 140.

Amendment 142, in clause 41, page 48, line 33, leave out from “arrangements”” to end of line 34 and insert

“means direct payment arrangements within the meaning of section 111A of the Pension Schemes Act 1993 or section 107A of the Pension Schemes (Northern Ireland) Act 1993.”— (Torsten Bell.)

This amendment is consequential on Amendment 140.

[Sarah Edwards]

I beg to move amendment 278, in clause 41, page 49, line 26, at end insert

“and only after VFM assessments are available to the Trustees as part of the decision making process.”

This amendment would restrict external transfers until VFM assessments are available to ensure that Trustees can carry out their fiduciary duty.

The amendment relates to contractual override. It may have been covered in the new drafting of the clauses, as it was tabled on the previous text. The Minister may have seen this potential eventuality, and it may be provided for elsewhere, but we have spoken at length in Committee about the importance of pensions adequacy and about the landscape moving towards a higher membership of defined-contribution schemes.

The amendment is an attempt to bridge the gap presented by the delay between the regulations’ implementation, and to ensure that investments are made not on the basis of low-cost, low-risk funds prior to the regulations being implemented, which potentially would lock down investments. It is another small addition that clarifies the importance of the value for money framework, which the Bill is championing, and it adds to the requirement of consent in the provision by adding focus on ensuring that value for money assessments are available prior to the transfer, as an extra protection for trustees to carry out their fiduciary duty.

[Torsten Bell]

I thank my hon. Friend. She is right that it is important that we think through how to line up the value for money work with the question we are now turning to on contractual overrides. I will come back to distinguish between the data that comes through the value for money process and the actual formal assessments themselves, which is what is referred to in the amendment. We agree that the value for money data is vital for ensuring consumer protections, and it is why the implementation of the contractual override mechanism is already being timed so that it is in conjunction with the value for money framework. The very keen can read that in the road map we set out in June, which gets into exactly those questions.

To go into a bit more detail—and I appreciate that my hon. Friend already knows this—the data for the value for money assessment will be available ahead of the formal assessments, and it is on that basis that people will be able to go ahead with some forms of contract override—for example, when they are moving members within parts of the individual providers, so they would have all the information that they require.

My hon. Friend raised a specific question about when people are being transferred between schemes. Should that always wait for the full value for money assessments? I will give her another commitment that I will take that away and consider it. There may be some circumstances in which that information is available, and we do not wish to unduly constrain providers, but it is a reasonable point for us to be discussing. As I say, she is right to raise the point about the interaction between the value for money data, including its visibility to other people, and the contractual override. If she is happy to withdraw the amendment, I will consider whether we can provide further clarity on the point on Report.

[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?