Pension Schemes Bill (First sitting)

Debate between Steve Darling and John Grady

Committee stage
Tuesday 2nd September 2025 Public Bill Committees

[John Grady (Glasgow East) (Lab)]

Q This question is for Ms Alexander. A lot of my constituents are driven mad by small pots; they have worked in different jobs and have no idea how much money they have saved for a pension, so please could you outline the benefits of the small pots reforms to people in my constituency, and the practical steps needed to make the small pots regime work—for example, by way of IT?

Zoe Alexander: The small pots reforms are absolutely critical. The problem of small pots was foreseen by the Pensions Commission years ago. We all knew we would face that problem with automatic enrolment, and I think people would agree that it has taken too long to grasp the nettle. We at Pensions UK are really delighted to see the measures in the Bill to deliver the multi-consolidator model. It is really important that the pot size is kept low, as is proposed in the Bill, at least initially, to solve the problem of the smallest pots in the market. Pensions UK has undertaken a feasibility study, working with Government, to look at how that small pots system might be delivered in practice. That work is publicly available. It gets quite technical quite quickly, so I will not go into the details of it, but we believe there is a feasible model of delivering the small pots solution at low cost—one that should not involve Government in a major IT build.

[Steve Darling (Torbay) (LD)]

Q We have already had some exploration of mandation and other opportunities around getting greater investment within the United Kingdom. I would welcome some more drawing out of how investing in UK opportunities could be amplified without the need for mandation.

Rob Yuille: We have both mentioned the Mansion House accord already. In addition to the ambition to which providers committed, there were a series of critical enablers. Several of those are in the Bill already—thank you for that—including value for money and the drive to consolidation. But there were other things in there as well, including the need for alignment by the Department for Work and Pensions and the Financial Conduct Authority of their rules and guidance in relation to the charge cap pipeline of infrastructure projects, which I know the Government are proceeding with separately; and the need to ensure that the whole market buys into the value-for-money framework. In the pension investment review, Government did not take forward regulation of intermediaries—employee benefit consultants and so on—and we think that they could keep that under review.

The Government are seeking to take other steps that will evolve over time, such as crowding in investments. There are examples such as the British Growth Partnership and the LIFTS scheme, where the Government are either convening or investing alongside providers, which we would like to see more of. Outside of DC, as has been mentioned already, it is about working with annuity providers on eligibility for certain assets.

--- Later in debate ---

[Steve Darling]

Q The other element I just want to touch on briefly is whether you have any thoughts on educating firms’ trustees about what value for money really is? Quite often, as you have alluded to, it is the cheapest investment, rather than the one that gives the maximum return, that they might be seeing from the HR department of a company, rather than getting a broader perspective. That would be really helpful. Any thoughts around that world?

Patrick Coyne: I think bringing consistent comparable metrics that matter to the marketplace in a format that people can trust can start to drive competitive pressures on what matters, which is holistic value. Trustees—and across the Bill—want to do the right thing. They want to act in members’ best interests, but they do not have the tools for the job. The starting point is to provide them with quality information to act on that intent.

[John Grady]

Q With DC—defined contribution—schemes, as you know, savers themselves have discretion about where they put their money. The issue we face, illustrated by Dimson, Marsh and Staunton’s regular review of asset returns, is that people are not saving in things that will get them a long-term return, are they? The other issue we face is that there has been a real shift from public markets to private markets over the past 25 years or so. If you are not investing in those, you are missing out on returns that mean more money when you retire. I was just wondering, Ms Clark, if you could just put into context the work you are doing on the advice guidance boundary review and wider advice to savers, and how that will help pension savers and, therefore, help these reforms succeed?

Charlotte Clark: It is important to say that most people who are saving in a pension are probably saving in the default. When you say that they are choosing their investment, most of them are not. Whether it is the trustees of that scheme or whether it is the independent governance committee of that scheme, most people are going into that default, so the importance of the default is really crucial. While it is important to really think about engagement and talk about the advice guidance boundary review and some of the work that is happening there, it is also important that some people will not want to make those decisions. It is only people like us who seem to care about these sorts of things. Getting other people engaged in their investment is quite a challenge.

You are right that we are doing quite a lot of work, largely around the ISA area and the at-retirement area. One of the challenges at the moment is people taking money out of their pension and then putting it in cash. That may seem like a really wise decision if you are 55, but if you do not need that money for 20 years, it may keep track with inflation but you are going to miss out on asset returns, equity returns or other aspects of investment. So, we are really thinking about how we engage with people about those sorts of discussions. How can we make sure they are getting the right support? It comes back to the targeted support programme, which goes live in spring next year. So, working with providers at the moment on how they can support people when they are making these sorts of decisions, and just think about whether, if it is not full financial advice—I understand that can be very, very costly—are there other areas where we can give people help that is not as kind of extreme as that but allows people to think about those decisions in the round?

Patrick Coyne: I would just add that one of the reforms in the Bill around guided retirement is reflective of that default conundrum we face. We have a brilliant system—11 million more savers—but nobody making an active choice. That means that when people approach retirement, only one in five has a plan to access and when they do, as Charlotte said, half are taking it as cash. That cannot be the right outcome. Within the Bill, introducing a guided retirement duty enables those institutional investors to start to guide individuals or cohorts of members into the right kind of products for them, with clear opt-outs for them to choose a different way. As Charlotte said, the type of support and new form of regulated advice could really help inform savers and make good choices at that point.