Pension Schemes Bill (Fourth sitting)

Steve Darling Excerpts

Committee stage
Thursday 4th September 2025 Public Bill Committees

[The Chair]

I remind the Committee that with this we are discussing the following:

Amendment 260, in clause 9, page 8, line 30, at end insert—

“(e) requiring the trustees to provide a prescribed notification, as set out in (f) below, with the members of the scheme (or their representatives) not less than 60 days before making any payment under this section;

(f) the prescribed notification should include—

(i) the proposed amount of surplus to be paid to the employer,

(ii) the reasons for the proposed payment,

(iii) the impact on member benefits,

(iv) the scheme’s funding position after the proposed payment, and

(v) how members may make representations regarding the proposal;

(g) requiring the trustees to have regard to any representations made by members or their representatives having received the prescribed notification.”

This amendment would require trustees to notify members at least 60 days before making surplus payments to employers. It ensures members receive full information about proposed surplus payments, enabling informed participation.

Amendment 265, in clause 9, page 8, line 30, at end insert——

“(e) requiring the trustees to provide a prescribed notification to members of the scheme, or members’ representatives, not less than 60 days before making any payment under this section,

(f) requiring the prescribed notification under subsection (e) include—

(i) the proposed amount of surplus to be paid to the employer,

(ii) the reasons for the proposed payment,

(iii) the impact on member benefits,

(iv) the scheme's funding position after the proposed payment,

(v) how members may make representations regarding the proposal, and

(g) requiring the trustees to have regard to any representations made by members or their representatives having received the prescribed notification under subsection (e).”

This amendment would require trustees to notify members at least 60 days before making surplus payments to employers.

Amendment 267, in clause 9, page 8, line 30, at end insert—

“(e) requiring that, where the scheme actuary certifies under subsection (a) that the scheme’s assets exceed the cost of securing each member’s accrued rights with an authorised insurer for a continuous period of at least six months, the trustees must first secure a full buy-out of those rights before any payment of surplus may be made to the employer or any other person, and

(f) requiring that subsection (e) does not apply if the scheme actuary certifies that any surplus extraction would, after the extraction, still leave the scheme’s assets exceeding the cost of securing each member’s accrued rights with an authorised insurer.”

This amendment inserts a requirement to ensure that surplus extraction prior to a buyout does not adversely impact the scheme’s ability to reach buy-out.

Amendment 261, in clause 9, page 8, line 36, at end insert

“and including confirmation that the proposed payment (surplus access) will not adversely impact members’ benefits and that the prescribed notification has been completed in accordance with regulations made under subsection (2A).”

This amendment would aim to strengthen an actuary's role and oversight of schemes accessing surplus, by requiring confirmation that member notification has occurred before certifying surplus payments.

Does Mr Darling wish to respond further in this debate?

[Steve Darling (Torbay) (LD)]

I am happy for the Committee to proceed.

[Mark Garnier (Wyre Forest) (Con)]

Sir Christopher, I am happy to proceed in order to get things moving.

Question put, That the amendment be made.

--- Later in debate ---

[Steve Darling]

I should start by saying that I do not recognise the purist approach that we have heard from the hon. Member for Aberdeen North. This is an issue close to my heart, because my father, having seen the poverty that his father was in, saved significantly in his private pension scheme as a lorry driver. Sadly, however, he was extremely poorly advised, and as he approached retirement he put thousands and thousands of pounds into equities; then, in the late 1980s, there was a stock market crash. He might as well have burned half of his money. The further we drive the health of the pension industry, the better, and particularly knowledge for those who may not be very much in the financial world.

We heard in evidence from NEST that only 40% of people have even registered online to know what their pension is doing. For people for whom the financial world is a complete challenge—and even for many of us in this room, getting our head around it totally is a bit of a challenge—it is essential that we use every possible lever to make sure that quality advice is available. As Liberal Democrats, we will unashamedly use every opportunity in the Bill to provide high levels of education for those who are in receipt of pensions and to give them as much wind in their sails as possible.

[Torsten Bell]

I shall give a short speech, because there is a worrying habit developing of the hon. Member for Aberdeen North giving the Government Front-Bench speech for me. I should encourage that as we go on—she might be slightly traumatised by that, but we are where we are. Everybody in this room will agree on the importance of the principle that has been highlighted, and we have just heard a powerful point exactly along those lines.

Although the Government understand the intent behind amendment 3, there are two reasons why we will not support it. The first is a point of principle, which I have already set out: it is for trustees, not the Government, to decide how surpluses that benefit members should take place. We discussed the issue of discretionary benefits just now.

The second reason is less a point of principle and more a matter of reality. The amendment would provide advice only to existing members of specific schemes. I think we all agree, particularly in the light of the point made by the hon. Member for Aberdeen North, that the main problems are about the defined-contribution space and people coming up towards retirement. Lots of the people who are in schemes who would be coming forward for surplus release are already drawing down a very well-defined pension income.

It is not the ideal way to focus on the particular problem that we all agree exists, but we completely agree that robust guidance that assures that everyone has access to free and impartial advice is very important. That is the job of the Money and Pensions Service, but I completely hear what has been said about how it needs to go further. I am grateful for hon. Members’ contributions, but I urge the hon. Member for Horsham to withdraw his amendment.

--- Later in debate ---

Division 5

Ayes: 5

---

Conservative: 3
Liberal Democrat: 2

Noes: 11

---

Labour: 10
Scottish National Party: 1

[Steve Darling]

I beg to move amendment 264, in clause 9, page 9, line 4, at end insert—

“(e) Where regulations under subsection (2A) lower the funding threshold for a surplus payment to below the full buy-out funding level, the Secretary of State must—

(i) conduct an assessment setting out—

(A) prescribed stress scenarios and their impact on funding,

(B) a maximum permissible extraction percentage for each scenario, and

(C) contingencies to restore funding;

(ii) consult the Pensions Regulator, the FCA, and such actuarial bodies as may be prescribed; and

(iii) lay a report of the assessment before Parliament.”

This amendment requires the Secretary of State to conduct an assessment when the DWP calibrates any extraction threshold below buy-out.

[The Chair]

With this it will be convenient to discuss amendment 258, in clause 9, page 9, line 21, leave out

“in subsection (2A), after ‘section’ insert ‘37(2A),’”

and insert

“in subsection (2), after ‘virtue of’ insert ‘(za) section 37(2A)’”.

This amendment would make all regulations on DB surplus extraction subject to the affirmative procedure all times they were made rather than just after first use.

--- Later in debate ---

[Steve Darling]

Amendment 264 would provide a backstop and a check where there are potential extractions and buy-outs. It would give an opportunity for the Secretary of State to cast an eye over the process when the DWP does an assessment. It goes back to safeguarding: as I am sure this Committee will discuss repeatedly, we need to ensure that we have investors’ and beneficiaries’ best interests at heart. I hope that the Secretary of State will take the proposal at face value, as an appropriate guardrail, and I look forward to its endorsement.

[Mark Garnier]

Conservative amendment 258 would ensure that all regulations made under proposed new section 37(2A) of the Pensions Act 1995, which governs surplus payments from defined-benefit pension schemes, are subject to the affirmative procedure always, not just the first time that they are made. That would give Parliament ongoing oversight and scrutiny of any future regulations in the area. Without the amendment, regulations on defined-benefit surplus extraction would not consistently require parliamentary approval. That would potentially lead to insufficient scrutiny.

The amendment aims to provide better parliamentary control over regulations as they are introduced. The key worry is the risk that the Secretary of State, whoever he or she may be, might use these powers to allow the payment of a surplus at funding levels below buy-out standards at some point in future, which could jeopardise scheme security and could happen without parliamentary scrutiny. The amendment is about improving the transparency and accountability of surplus extraction regulations for DB pension schemes, ensuring that Parliament maintains consistent oversight and guarding against premature surplus extractions that might undermine scheme funding security.

--- Later in debate ---

[Torsten Bell]

I think I am grateful to the hon. Lady for her attempt to fire me. To clarify, carrying out the kind of prescribed stress scenarios and assessments set out in the amendment would require the Department for Work and Pensions to examine the DB landscape. In this specific area, that is the role of TPR and the PPF.

I turn to amendment 258. The first regulations on surplus will be subject to the affirmative procedure, for exactly the reasons that have been set out, and exactly because at that point they will be new but also comprehensive. As with every other pensions Bill, what we do not want to see is the affirmative procedure being used for small, technical changes that come to those regulations in the years that follow. However, our approach does allow for the necessary debate when those regulations are made. On that basis, I urge hon. Members to support the Bill as drafted.

[Steve Darling]

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendment proposed: 258, in clause 9, page 9, line 21, leave out

“in subsection (2A), after ‘section’ insert ‘37(2A),’”

and insert

“in subsection (2), after ‘virtue of’ insert ‘(za) section 37(2A)’”.—(Mark Garnier.)

This amendment would make all regulations on DB surplus extraction subject to the affirmative procedure all times they were made rather than just after first use.

Question put, That the amendment be made.

--- Later in debate ---

[Torsten Bell]

Clause 9 will amend the safeguards on the sharing of surplus. The details will be set out in regulations, the parliamentary procedures of which we have just discussed. These safeguards will place the safety of members’ benefits at the heart of the policy.

Proposed new subsection (2B) of section 37 of the Pensions Act 1995 sets out the requirements, which are there to protect members, that must be set out in regulations before trustees can pay a surplus to the employer—namely that before a trustee can agree to release a surplus, they will first be required to receive an actuarial certification that the scheme meets a prudent funding threshold, and that members must be notified before surplus is released.

The funding threshold will be set out in regulations, which we will consult on, as discussed. We expect that release of the surplus will be permitted only when a scheme is fully funded on a low-dependency basis. Trustees are already required, through existing legislation, to set a long-term funding and investment strategy that targets exactly this funding level. These funding conditions will be set out in regulations made under the affirmative procedure and debated when first introduced.

Proposed new subsection (2C) will provide the ability to introduce additional regulations aimed at further enhancing member protections, where considered appropriate. Superfunds will be subject to their own regime for profit extraction; I am spelling this out, because we will come to it later in the Bill. The proposed new subsection will allow regulations to be made that are consistent with those provisions. Regulations may prevent payments from superfunds for a period, if surplus regulations come into force earlier than the superfund legislation, which we will debate later in the Bill. Crucially, decisions to release any surplus will remain subject to trustee discretion. I also note the removal of the statutory test in section 37(3)(d) of the Pensions Act, on the grounds that it does no more than reflect trustees’ existing duties.

The technical and consequential amendments at subsections (4) to (7) of clause 9 are to ensure that the new measures sit correctly in existing legislation but do not affect the overall policy. In summary, the clause will ensure that the release of a surplus is subject to strict safeguards. I commend it to the Committee.

Question put and agreed to.

Clause 9 accordingly ordered to stand part of the Bill.

Clause 10

Relevant schemes: value for money

[Steve Darling]

I beg to move amendment 269, in clause 10, page 10, line 10, at end insert—

“(aa) make, publish and keep under review the consistency of—

(i) regulated VFM schemes, or

(ii) regulated VFM arrangements,

with the goals of the Paris Agreement on climate change and clean energy;”.

This amendment, with Amendment 270, would require pension funds and managers to show whether their portfolio investments are consistent with the Paris Agreement.

[The Chair]

With this it will be convenient to discuss the following:

Amendment 272, in clause 10, page 10, line 10, at end insert—

“(aa) make, publish and keep under review the compliance of—

(i) regulated VFM schemes, or

(ii) regulated VFM arrangements,

with statutory and regulatory targets for reducing sewage discharges by water and sewerage undertakers,”.

This amendment, with Amendment 273, would require pension funds and managers to monitor and report on the compliance of water and sewerage companies they invest in with targets for reducing sewage discharges.

Amendment 270, in clause 10, page 10, line 20, at end insert—

“(d) publish or share with prescribed persons, for the purpose of enabling VFM assessments to be made, prescribed categories of information (referred to as ‘climate alignment metric data’) regarding the scheme’s exposure to climate-related financial risks and the alignment of its investments with the goals of the Paris Agreement on climate change and clean energy.”

This amendment, with Amendment 269, would require pension funds and managers to show whether their portfolio investments are consistent with the Paris Agreement.

Amendment 273, in clause 10, page 10, line 20, at end insert—

“(d) publish or share with prescribed persons, for the purpose of enabling VFM assessments to be made, prescribed categories of information (referred to as ‘sewage discharge compliance data’) regarding the scheme’s exposure to, and investment in, companies holding permits to discharge sewage, including those companies’ performance against statutory and regulatory targets for reducing sewage discharges.”

This amendment, with Amendment 272, would require pension funds and managers to monitor and report on the compliance of water and sewerage companies they invest in with targets for reducing sewage discharges.

Amendment 271, in clause 12, page 12, line 21, at end insert—

“(iv) the consistency of the investment portfolio with the goals of the Paris Agreement on climate change and clean energy, including metrics for assessing climate-related financial risks and opportunities;”.

This amendment would require pension funds and managers to show whether their portfolio investments are consistent with the Paris Agreement.

Amendment 274, in clause 12, page 12, line 21, at end insert—

“(iv) the compliance of the investment portfolio with statutory and regulatory targets for reducing sewage discharges by water and sewerage undertakers, including metrics for assessing related environmental and financial risks and opportunities;”.

This amendment would require pension funds and managers to monitor and report on the performance of water and sewerage companies they invest in against targets for reducing sewage discharges.

--- Later in debate ---

[Steve Darling]

In tabling these amendments, we wanted to make sure that we calibrated them carefully. It is not about giving a clear instruction that says, “You must do this”; it is about ensuring that investors are alive to the Paris agreement on climate change and clean energy and that our water companies are complying with cleaning up our rivers and seas. Introducing a duty to report on how funds are having an impact on that would ensure a level of awareness without dictating to investors and thereby having an impact on the fiduciary duties that trustees should clearly have.

Throughout the Bill, the Government have quite rightly highlighted how pensions can be a force for good for our economy and for those who invest in it. The amendments would reinforce that approach. On climate change, clean energy and cleaning up our seas and rivers, the amendments are writ much larger, without interfering in where the money should be invested.

[Mark Garnier]

These are not amendments that we feel particularly inclined to support. They would require pension fund managers to make, publish and keep under review data to show that their portfolio investments are consistent with the goals of the Paris agreement on climate change and clean energy. That would include publishing prescribed information relating to climate change alignment and sewage discharge. Those are immensely important and worthy ambitions and intentions; we share their spirit, as we want a cleaner planet, cleaner waterways and improvements to our climate, but I do not think that this is the place to do it. Pension funds should be allowed to look at the best interests of their members, irrespective of wider public and social aspirations, so this is not a proposal that we feel we can support.

--- Later in debate ---

[Torsten Bell]

My support for the Welsh Government’s Well-being of Future Generations (Wales) Act 2015 is on the record, so I get to disagree with the hon. Member for Aberdeen North on something, which will be a relief for everybody.

I thank the hon. Member for Torbay for tabling the amendments. Clearly, addressing climate change is absolutely central to this Government’s agenda. It needs to be done in the right way. Pension funds hold significant capital, and I am pleased to say that at every conference and every session I hold with people involved in the industry I see that investors and pension schemes do now use their influence on companies to encourage them to take responsible action. That has been a big change over the course of the last decade. It can lead to better risk management and potentially also improve returns on investments, as well as helping companies to perform better in relation to environmental targets.

My overall argument, though, is that trustees must already consider financially material risks, including ESG factors. The statement of investment principles and the implementation statement are key tools that are already in place for disclosing a scheme’s approach to ESG issues, including climate change. Ultimately, the amendment is about disclosures; that is what it aims to achieve. Additionally, large schemes with assets above £1 billion, which in future will be the majority of schemes because of the scale measures that we will come back to, must also report on climate-related risks and opportunities, in line with the Task Force on Climate-Related Financial Disclosures.

We are looking to strengthen sustainability reporting, exactly as the hon. Member for Torbay wishes to see, through new UK sustainability reporting standards and our transition plan’s commitment, which the Government consulted on this summer. Taken together, our policy initiatives will modernise the UK’s framework for corporate reporting, giving pension schemes vital information about companies’ decarbonisation plans and about whether to escalate their engagement efforts with investee companies on environmental issues. The DWP is contributing to that work and will review the effectiveness of climate reporting requirements later this year, as part of our post-implementation review of the requirements of the Taskforce on Inequality and Social-related Financial Disclosures.

Given the existing reporting requirements, the Government’s position is that we will gently resist the amendments, to avoid duplication.

[Steve Darling]

Climate change is an existential threat to humanity, and although sewage may not be such a threat, it is still a significant issue; indeed, it is a wicked issue that needs to be tackled by our society as a whole. I wish to press the amendment to a vote, to show the Committee’s intent ahead of the Bill’s next stage.

Question put, That the amendment be made.

--- Later in debate ---

[The Chair]

Before I call the Minister, I should say that it is not clear to me whether Mr Darling wishes to speak to amendments 1 and 2, which are in this grouping.

[Steve Darling]

That had eluded me, Sir Christopher, so thank you for drawing me out on this one. Amendments 1 and 2 ensure that there is consistency and that there are no gaps where schemes could perhaps fall between the cracks of legislation. We feel that the amendments would give that continuity of support to schemes.

[Torsten Bell]

In response to the hon. Member for Torbay, I should say that I have already set out the case for the value for money framework not covering defined benefit pension schemes, which is what the effect of the amendment would be.

To the questions raised by the hon. Member for Aberdeen North, broadly, the answer is yes: the regulations will be published in detail as part of the consultation. Significant consultations have already gone on with a very wide range of stakeholders, both by the TPR and by the Financial Conduct Authority. There are further consultations, and then draft regulations, to come. It is worth thinking about how a lot of the changes in the Bill reinforce each other. It is important that we make reasonably swift progress on the value for money regulations, because the value for money regime is a requirement for us to be able to then make progress on some of the other bits that we will come to discuss, such as contract override and, indeed, small pots.

Amendment 28 agreed to.

Clause 10, as amended, ordered to stand part of the Bill.

Clause 11

Publication etc of metric data

--- Later in debate ---

[Mark Garnier]

Clause 12 seems fairly reasonable in its approach. Liberal Democrat new clause 42 seems in the broadest sense to follow our amendment 254 in respect of the Australian model; should it be pressed to a vote, we would be happy to support it. I have nothing more to add.

[Steve Darling]

As I stated earlier, one of our key drivers is making sure that people are able to make quality, informed decisions about their financial long-term future. The debate on the new clause drives that agenda. I am sure that the Minister has the best intentions, but what we are discussing is still within regulations that have yet to break cover. We would be more comfortable if it was in the Bill rather than tucked away in regulations. We will seek to press the new clause to a vote when the time comes.

Question put and agreed to.

Clause 12 accordingly ordered to stand part of the Bill.

Clause 13

Member satisfaction surveys

Question proposed, That the clause stand part of the Bill.

[Torsten Bell]

It will be a great relief to everybody to hear that clause 13, although vital, is relatively small. Importantly, it enables requirements relating to member satisfaction surveys, of a kind that I know hon. Members are supportive of, to be set out in the value for money regulations. As I have just argued, quality of service is one of the key pillars of the value for money assessment, and member satisfaction is a key aspect within that pillar. These surveys will allow schemes to better understand their members’ experience and to gauge just how good a service they are providing for scheme members. Members’ experiences and views on the quality of service will provide inputs to the holistic assessment of value that this entire part of the Bill aims to offer.

--- Later in debate ---

[Mark Garnier]

My hon. Friend makes an incredibly important point. The story that the Liberal Democrat spokesman, the hon. Member for Torbay, told about his father is the most important point here. As we come to the point where we want to cash in the defined-contribution pension, we could find ourselves cashing in at completely the wrong moment. In a stock market crash, although it could be just a blip in a long-term bull market, none the less the hon. Member’s father would have seen a 37% drop in the value of his equities if he was benchmarked to the FTSE 100. If he was in higher growth businesses, he could, as the hon. Member said, have seen a 50% drop. So we have to be very careful.

We can be as risky as we like when we are 21 years old. I cannot remember whether it was Adam Smith or Einstein who said that the eighth great wonder of the world is compound interest. Obviously we want to take risk early but, as we come up to that day when we finally turn our papers in and go home on the last day of work, we need to make sure we have got as much money out of our pension fund as we possibly can. That is why it is important to ensure that the VFM framework does not cause problems.

[Steve Darling]

This is a very interesting debate as lives continue to lengthen. In terms of people’s capabilities at different ages, 70 is probably the new 60. The reality is that someone might want to take out a proportion of their pension and hope for growth into their 80s, and then crystallise it at that stage of their life. Not that long ago, we had to buy an annuity, and there was not much choice, so we hit a hard wall. There is greater flexibility in the system now.

I want to talk about chickens. We heard talk in the evidence earlier this week of herding chickens, and of people not wanting to be the only white chicken in brown chicken world. It is about allowing the risk that drives growth. We know that allowing that risk can also drive a more vibrant economy. I welcome the Minister’s thoughts on how this framework can avoid that herding and how he would do that. I fear that the answer will be, “It will all be in the regulations and secondary legislation”, but some words of wisdom from the Minister would be welcome.