Pension Schemes Bill

Torsten Bell Excerpts

2nd reading
Monday 7th July 2025 Commons Chamber

[The Parliamentary Under-Secretary of State for Work and Pensions (Torsten Bell)]

I beg to move, That the Bill be now read a Second time.

This Bill aims to deliver fundamental reforms to our pensions landscape, and it is good to see that the prospect of discussing a long, slightly technical pensions Bill has seen so many Members flooding into the Chamber. These are reforms on which there is a broad consensus across the pensions industry. They also build on at least something of a consensus across the House. In its principal focus on higher returns for pension savers, the Bill also responds to specific responsibilities that we hold in the House.

It is because of decisions of Parliament that something significant has happened over the past decade: British workers have got back into the habit of saving for a pension. Today, more than 22 million workers are building up a pension pot. That represents a 10 million increase since 2012, when Parliament introduced the policy of automatically enrolling workers. The rise is largest for women and lower earners. So there is lots to celebrate as more save, but there are no grounds at all for complacency about what they are getting in return.

The private sector final salary pensions that many of today’s pensioners rely on guarantee a particular income in retirement. If those pension schemes do not deliver good investment returns, that is a problem for the employer and not directly for the saver. But most of tomorrow’s retirees with a defined-contribution pension bear all the risk; there is nothing guaranteed. How well the pension scheme that they save into performs matters hugely, and because pensions are a very long game, even small differences in how fast a pension pot grows can make a massive difference over time.

That is the system that the House has chosen, so the onus is on us to ensure that it delivers. But the pension system that we have today is too fragmented, too rarely does it ensure that people’s savings are working hard enough to support them in retirement, and it is too disconnected from the UK economy. That is the case for change and the context for the Bill.

The UK has the second-largest pension system in the world, worth £2 trillion. It is our largest source of domestic capital, underpinning not just the retirement we all look forward—or at least most of us look forward to—but the investment on which our future prosperity depends. But our big pension system has far too few big pension schemes. There are approaching 1,000 defined-contribution schemes and less than 10 providers who currently have £25 billion or more in assets.

A consolidation process is already under way, with the number of DC schemes reducing by about 10% a year. What the Bill does is add wind to the sails of that consolidation. It implements the conclusions of the pensions investment review, creating so-called megafunds. For the DC market, we intend to use the powers provided for in clause 38 to require multi-employer schemes to have at least £25 billion in assets by 2030, or a credible pathway to be there by 2035. Bigger and better pension funds can deliver lower costs, diversified investments and better returns for savers. That supports the work that the industry is already doing to better deliver for savers.

As the House has discussed before, in May, 17 major pension providers managing about 90% of active defined-contribution pensions signed the Mansion House accord. This industry-led initiative saw signatories pledge to invest 10% of their main default funds in private assets such as infrastructure by 2030, with at least 5% in UK assets. That investment could support a better outcome for pension savers and back clean energy developments or fast-growing businesses. To support this industry-led change, the Bill includes a reserve power that would allow the Government to require larger auto-enrolment schemes to invest a set percentage into those wider asset classes. That reflects the reality that the industry has been calling for the shift for some time, but words have been slow to translate into actions.

[Dame Meg Hillier (Hackney South and Shoreditch) (Lab/Co-op)]

I draw the House’s attention to the fact that I am a trustee of the parliamentary contributory pension fund. Consolidation is absolutely the right direction of travel so that pension funds have better experts who are better able to advise. I still have a slight concern, though, about mandation. There will have to be schemes to invest in, and they will need to ensure that they are getting returns. How will the Minister ensure that the Bill actively delivers on both sides of the equation?

[Torsten Bell]

I thank my hon. Friend for her question and for her oversight of all our pensions, which I think is reassuring. [Laughter.] Sorry; it is reassuring! I will come directly to her point, because I know that is one question that hon. Members on both sides of the House will want to raise. Let me just say that the Bill explicitly recognises the fiduciary duty of trustees towards their members.

[Mr Alistair Carmichael (Orkney and Shetland) (LD)]

In the last Parliament, a number of us raised concerns about the administration of defined-benefit schemes by, among others, BP, Shell and Hewlett-Packard. It was obvious at that stage—I think this view was held by his right hon. Friend the Minister for Social Security and Disability, who was then the Chair of the Work and Pensions Committee—that one of the root causes of the problem was insufficient independence and oversight by defined-benefit pension trustees. What is there in this Bill that will protect the position of pensioners in their retirement under those schemes?

[Torsten Bell]

The right hon. Member invites me to skip quite a long way forward in my speech, and it is a long speech.

[Madam Deputy Speaker (Ms Nusrat Ghani)]

Ah.

[Torsten Bell]

That was not the support I was hoping for from the Chair—understandable, but harsh. I will come to some of the points that the right hon. Member raises. I think he is referring particularly to pre-1997 indexation, which I shall come to.

As I said, the Bill includes a reserved power that will allow the Government to require larger auto-enrolment schemes to invest a set percentage into wider assets. That reflects the wider calls that have been made for this change but have not led to its taking place. What pension providers are saying is that they face a collective action problem, where employers focus too narrowly on the lowest charges, not what matters most to savers: the highest returns. I do not currently intend to use the power in the Bill, but its existence gives clarity to the industry that, this time, change will actually come.

Some argue—I will come to some of the points made by my hon. Friend the Member for Hackney South and Shoreditch (Dame Meg Hillier)—that this somehow undermines the duty that pension providers have to savers. That is simply wrong. First, the Bill includes clear safeguards to prioritise savers’ interests and is entirely consistent with the core principle of trustees’ fiduciary duties. Clause 38 includes an explicit mechanism, which I have discussed with Members from the main three parties in this House, to allow providers to opt out if complying risks material detriment to savers. Secondly—this is the key point that motivates a lot of the Bill—savers are being let down by the status quo. There is a reason major pension schemes across the rest of the world are already investing in this more diverse range of assets.

Fragmentation within the pensions industry happens within providers, not just between them. Some insurers have thousands of legacy funds, so clause 41 extends to contract schemes the ability that trust-based schemes already have to address that. Providers will be able to transfer savers to another arrangement without proactive individual consent if, and only if, it is independently certified as being in the member’s best interest.

Another point that I hope is of common ground across the House is that we need to do more to realise the untapped potential of the local government pension scheme in England and Wales. We need scale to get the most out of the LGPS’s £400 billion-worth of assets. Again, the Bill will turn that consensus into concrete action. It provides for LGPS assets spread across 86 administering authorities to be fully consolidated into six pools. That will ensure that the assets used to provide pensions to its more than 6 million members—predominantly low-paid women—are managed effectively and at scale. Each authority will continue to set its investment strategy, including how much local investment it expects to see. In fact, these reforms will build on the LGPS’s strong track record of investing in local economic growth, requiring pension pools to work with the likes of mayoral combined authorities. In time, bigger and more visible LGPS pools will help to crowd private pension funds and other institutional investors into growth assets across the country.

Our measures will build scale, support investment and deliver for savers, but the Bill does more to ensure that working people get the maximum bang for every buck saved. To reinforce the shift away from an excessively narrow focus on costs, clause 5 provides for a new value-for-money framework. For the first time, we will require pension schemes to prove that they provide value for money, with standardised metrics. That will help savers to compare schemes more easily, and drive schemes themselves to focus on the value that they deliver. For persistently poor performers, regulators will have the power to enforce consolidation. That will protect savers from getting stuck in poorly performing schemes—something that can knock thousands of pounds off their pension pots.

We are also at last addressing the small pension pots issue. I was out door-knocking in Swansea earlier this spring, and a woman in her mid-30s told me that something was really winding her up—and it was not me knocking on the door. [Laughter.] This is a very unsupportive audience. It was trying to keep track of small amounts of pension savings that she had from old jobs; the only thing that was worse was that her husband kept going on about it. There are now 13 million small pension pots that hold £1,000 or less floating around. Another million are being added each year. That increases hassle, which is what she was complaining about, with over £31 billion-worth of pension pots estimated to currently be lost. It costs the pensions industry around £240 million each year to administer. Clause 20 provides powers for those pots to be automatically brought together into one pension scheme that has been certified as delivering good value. Anyone who wants to can of course opt out, but this change alone could boost the pension pot of an average earner by around £1,000.

Of course, once you have a pension pot, the question is: what do you do with it? We often talk about pension freedoms, but there is nothing liberating about the complexity currently involved in turning a pension pot into a retirement income. You have to consolidate those pots, choose between annuities, lump sums, drawdowns or cashing out. You have to analyse different providers and countless products. Choice can be a good thing, but this overwhelming complexity is not—77% of DC savers yet to access their pension have no clear plan about how to do so.

[John Glen (Salisbury) (Con)]

I agree with a lot of what the Minister is saying. Given what was said last week by the Financial Conduct Authority on targeted support, would he look again at what is being resisted by the Money and Pensions Service? It is not prepared to work with the pension schemes to allow automatic appointments so that pension savers can be guided to better outcomes. I realise that MaPS will say that it is too busy, but this is a key moment. If we could get people to engage at age 50, say, we would see vastly different outcomes for them if they invested properly, and in better ways, with their pensions.

[Torsten Bell]

I thank the right hon. Member for his question, and for the discussions that we have had on this important topic. He spent years working on this. The priority for MaPS right now is to ensure that we have the system set up to deal with the additional calls that are likely to come when pension dashboards are rolled out, but I will keep in mind the point that he raises. I think he and a number of hon. Members wrote to me about exactly that point. As I promised in my letter, I will keep it under review, but we must not overburden the system, because we need it to be able to deliver when pension dashboards come onstream.

[Nick Smith (Blaenau Gwent and Rhymney) (Lab)]

Will the Minister update us on when consumers will see the introduction of the pensions dashboard? [Laughter.]

--- Later in debate ---

[Torsten Bell]

I think recent progress on the pensions dashboard means that that deserves a little less laughter. What we are seeing at the moment is success, driving the first connections to the dashboards. Obviously, all schemes and providers are due to be connected by the autumn of 2026, but I will provide good notice of when we can give a firm date for that. My hon. Friend and near neighbour has secured himself early warning of exactly that happening.

We need to make the choices clearer for people as they move from building retirement savings to using them. The Bill gives pension schemes a duty to provide default solutions for savers’ retirement income—yes, with clear opt-outs. As well as reducing complexity and risk for savers, that will support higher returns because providers will be able to invest in assets for longer if they do not need to secure the possibility of having to provide full drawdown at retirement.

Each of these measures to drive up returns will have an impact on their own, but it is their cumulative impact that matters most, especially when it is compounded over the decades that we save for a pension. To give the House a sense of scale, someone on average earnings saving over their career could see their retirement pot boosted by £29,000 thanks to the higher returns that the Bill supports. That is a significant increase for something that should matter to us all.

The reforms that I have set out will transform the DC pensions landscape, but with £1.2 trillion-worth of assets supporting around 9 million people, defined-benefit schemes remain vital—they have already been raised by the right hon. Member for Orkney and Shetland (Mr Carmichael). Their improved funding position is hugely welcome. Around 75% are now in surplus, which has enabled far more schemes to reach buy-out with an insurer. Many more intend to do so, welcoming the security that buy-out can offer. Others may not be able to reach buy-out or may value running on their scheme for at least a time. The Bill provides those trustees with a wider range of options. Clauses 8 and 9 give more trustees the option to safely share surplus funds, which is something that many can already do.

[Alan Gemmell (Central Ayrshire) (Lab)]

I thank the Minister for giving way and the right hon. Member for Orkney and Shetland (Mr Carmichael) for raising this issue. What will the Bill do for my constituent Patricia Kennedy and the members of the Hewlett Packard Pension Association who are asking for more action on their pre-1997 non-index-linked contributions.

[Torsten Bell]

My hon. Friend has raised this issue with me on a number of occasions, and he is a powerful advocate for his constituents who have lost out through the discretionary increases that they were hoping to see on their pensions not being delivered. This is the same issue that the right hon. Member for Orkney and Shetland raised. One of the things that surplus release will allow is that trustees may at that point consider how members can benefit from any release that takes place. One thing I would encourage them to prioritise if they are considering a surplus release is the indexation of those that have not received it on their pre-1997 accrual. I hope that provides some clarity to the right hon. Gentleman and my hon. Friend.

[Sir Julian Lewis (New Forest East) (Con)]

I am extremely grateful to the Minister for taking my intervention and for the very helpful letter he sent me on 30 June about schemes of this sort, and in particular the ExxonMobil pension scheme. His letter encouragingly states:

“Following our reforms, trustees will continue to consider the correct balance of interest between members and the sponsoring employer when making decisions about the release of surplus funds. Trustees will be responsible for determining how members may benefit from any release of surplus…and have a suite of options to choose from—for example, through discretionary benefit increases.”

The trouble is that these pensioners have received a letter from the trustees of the ExxonMobil pension fund stating:

“The power to award discretionary increases is held by Esso Petroleum Company Limited (the “Company”). Whether or not any discretionary increase is provided is for the Company to determine: the Trustee has no power to award discretionary increases itself.”

This may be a loophole that the Minister needs to address. If the trustees cannot award the surplus as benefits and the company says no, that is not going to benefit my constituents.

[Torsten Bell]

I thank the right hon. Member for raising that specific case. I will look at it in more detail for him as he has kindly raised it here, but he has raised a point that will have more general application, which is that lots of different schemes, particularly DB schemes, will have a wide range of scheme rules. He has raised one of those, which is about discretionary increases. One thing that is consistent across all the schemes, with the legislation we are bringing in today, is that trustees must agree for any surplus to be released. It may be the case that the employer, in the details of those scheme rules, is required to agree to a discretionary increase, but the trustees are perfectly within their rights to request that that is part of an agreement that leads to a surplus release.

[Sir Julian Lewis]

What if it is the other way round?

[Torsten Bell]

In any circumstances, the trustees would need to agree to a surplus release, so they are welcome to say to their employer: we are only going to agree to it on the basis of a change to something that the employer holds the cards over. I am happy to discuss that with the right hon. Member further, and there may be other schemes that are in a similar situation.

[Lincoln Jopp (Spelthorne) (Con)]

The way in which the Minister is talking about insurance buy-out suggests that, in the Government’s mind, insurance buy-out is still in some way a gold standard. Can he reassure the House that he is seeking to flatten the playing field, such that the increased choice available to defined-benefit pension schemes will mean that for perpetuals who run on—such as OMERS, which started off as the Ontario municipal employees retirement system and is now worth 140 billion Canadian dollars—there is as much safety in superfunds as there is in insurance buy-out?

[Torsten Bell]

I shall come on directly to the question of superfunds, which I know the hon. Member has a long-standing interest in. There is obviously a distinction between closed and open defined-benefit schemes, which I think is relevant to the point he is raising. It is also important for trustees to have a range of options.

[Kirsty Blackman (Aberdeen North) (SNP)]

Obviously that can happen only where there are surplus funds, and there may not be surplus funds in all circumstances. I just want to give the Minister a heads-up in relation to the questions about employee benefits. It would be useful in Committee to have more information about the Government’s analysis of how many of these surplus releases will directly benefit the employees rather than the employers. I understand that the Government, with their mission for growth, want investment in growing the company as well, but what kind of split does he expect to see? I do not expect an answer to that today.

[Torsten Bell]

It is nice to sometimes be able to surprise on the upside. I would expect employees to benefit in most cases, because trustees are in the driving seat and I am sure they will want to consider how employers and employees will benefit from any surplus release. Obviously, the exact split between the two will be a matter for the individual cases, but I am sure we will discuss that further in Committee.

I want to reassure the House that this is not about a return to the 1990s free-for-all. DB regulation has been transformed since then, and schemes will have to remain well funded and trustees will remain in the driving seat. They will agree to a release only where it is in members’ interests and, as I said, not all schemes are able to afford to buy out members’ pensions with insurers.

The Bill also introduces the long-awaited permanent legislative regime for DB superfunds, which is an alternative means to consolidate legacy DB liabilities. This supports employers who want to focus on their core business, and, as the superfunds grow, they will have the potential to use their scale to invest in more productive ways. Crucially, trustees will be able to agree to a transfer into a superfund only where buy-out is not available and where it increases savers’ security.

The Pension Protection Fund is, of course, the security backstop for DB members. It celebrates its 20th anniversary this year, and it now secures the pensions of over 290,000 people. The Bill updates its work in three important ways: first, by lifting restrictions on the PPF board so that it can reduce its levy where appropriate, freeing schemes and employers to invest; secondly, by ensuring that PPF and financial assistance scheme information will be displayed on the pensions dashboard as it comes onstream, which my hon. Friend the Member for Blaenau Gwent and Rhymney (Nick Smith), who is now not in his place, is keen to see; and thirdly and most importantly, by making a change to support people going through the toughest of times. As several hon. Members have called for, we are extending the definition of terminal illness from a 6-month to a 12-month prognosis, providing earlier access to compensation for those who need it most.

Pensions are complex beasts, and so are the laws that surround them. That complexity is inevitable, but not to the extent that some recent court cases risk creating. The Bill also legislates to provide clarity that decisions of the Pensions Ombudsman in overpayment cases may be enforced without going to a further court. I have been clear that the Government will also look to introduce legislation to give affected pension schemes the ability to retrospectively obtain written actuarial confirmation that historical benefit changes met the necessary standards at the time.

Governments are like people in one important respect: they can easily put off thinking about pensions until it is too late. I am determined not to do that. We are ramping up the pace of pension reform. The past two decades have delivered a big win, with more people saving for their retirement, but that was only ever half the job. Today, too many are on course for an income in retirement that is less than they deserve and less than they expect. The Bill focuses on securing higher returns for savers and supporting higher income in retirement without asking any more than is necessary of workers’ living standards in the here and now.

The Bill sits within wider pension reforms as we seek to build not just savings pots but a pensions system that delivers comfortable retirements and underpins the country’s future prosperity. Legislation for multi-employer collective defined-contribution schemes will be introduced as soon as possible after the summer recess, and we will shortly launch the next phase of our pensions review to complete the job of building a pensions system that is strong, fair and sustainable. It is time to make sure that pension savings work as hard for all our constituents as our constituents worked to earn them. I commend the Bill to the House.

--- Later in debate ---

[Kit Malthouse]

That may well be true, but that is a different question. There is a question about financial education and the ability of large numbers of our fellow citizens to understand these financial complexities. We have a large and professional independent financial adviser community, and all pension funds are required to have pension advisers who can speak to members, tell them what is going on and explain the decisions before them. I do think that over the years, such steps have disenfranchised the British people from their financial decisions, yet we hold them responsible for their debts, their mortgages and their future. There is a larger question for us in this House about how much we have subtracted from the autonomy of the British people, and therefore how much blame attaches to us as politicians when their financial circumstances are not what they expect.

[Torsten Bell]

The right hon. Member is giving a lucid speech, as he always does—he speaks very well—but I am failing to understand exactly the point he is making. He is talking about a local government pension scheme, which is guaranteeing him an income in retirement, as if it is a defined-contribution scheme where he is the one at risk from changes in the investment performance. It is local taxpayers with their employer contribution who ultimately bear the risk in the scheme he is talking about. It is our job to make sure that those taxpayers have the best possible chance of not having bad returns, leading to bad outcomes for them. He is not at risk in the way he is talking about.

[Kit Malthouse]

But I have paid into that scheme.

[Torsten Bell]

You have.

[Kit Malthouse]

Yes, I have. I paid contributions through my employment at City Hall, as did my employer. Admittedly, it was a scheme based on a defined benefit, rather than a defined contribution, but that was the deal done with me on a settled contract, saying that this was what I would be provided for from my contribution. Every year, I review my pension benefit forecast. I am consulted by the fund about how it should conduct its affairs. I am asked to turn up to my pensioners’ conference to discuss with trustees how they are looking after my future. The point is that the Government are steaming in with absolutely no consultation with me as a pensioner and I have no right to be represented, although I am uniquely affected, beyond other pension schemes. I consider that to be high-handed and, as the hon. Member for Oldham East and Saddleworth said, to be solving a problem that does not exist.

My third point was also raised by my hon. Friend the Member for Wyre Forest (Mark Garnier): who carries the can? What happens when the Minister tells my private pension scheme or the parliamentary pension scheme that it must invest in, for instance, HS2 and it turns out to be a disaster? What happens when whichever ministerial pet project rises to the top of the priority list for pension allocation—what rough beast, its hour come round at last, slouches towards Whitehall to get its finance—and it all goes horribly wrong? I am sorry to quote Yeats to the Minister, but who will pay when that happens? When there is a deficit in defined-contribution pension funds that have been so directed by the Minister, who will pay for that deficit?

[Torsten Bell]

rose—