Pension Schemes Bill
House of Lords · Lords Chamber · 19 Mar 2026 · 227 speeches · Official Report
Report (2nd Day)
Scottish, Welsh and Northern Ireland l egislative c onsent granted. Relevant documents: 42nd and 47th reports from the Delegated Powers Committee .
Clause 12: Publication etc of metric data
Amendment 27 not moved.
Clause 14: Member satisfaction surveys
Amendment 27A not moved.
Clause 15: VFM ratings
Amendments 28 to 31 not moved.
Clause 16: Consequences of an intermediate rating
Amendment 32 not moved.
Clause 17: Consequences of a “not delivering” rating
Amendments 33 to 35 not moved.
Clause 18: Compliance and oversight
Amendments 36 to 39
Moved by
36: Clause 18, page 20, line 19, leave out “Regulations under subsection (1)” and insert “Value for money regulations” Member's explanatory statement This amendment corrects a consistency mistake.
37: Clause 18, page 20, line 36, leave out “The regulations” and insert “Value for money regulations” Member's explanatory statement This amendment corrects a consistency mistake.
38: Clause 18, page 20, line 38, leave out “the regulations” and insert “value for money regulations” Member's explanatory statement This amendment corrects a consistency mistake.
39: Clause 18, page 21, line 19, leave out “Regulations” and insert “Value for money regulations” Member's explanatory statement This amendment corrects a consistency mistake.
Amendments 36 to 39 agreed.
Amendments 40 to 43 not moved.
Amendment 44 not moved.
Clause 21: Interpretation of Chapter
Amendments 45 to 48 not moved.
Clause 22: Small pots regulations
Amendment 49
Moved by
49: Clause 22, page 24, line 19, leave out “12” and insert “36” Member's explanatory statement This amendment would only classify an unused pension pot as “dormant” if it had been left alone for at least three years, not just after one year.
My Lords, I will not detain the House too long on this amendment. It is a small amendment, but it is very important for members of pension schemes in auto-enrolment, particularly women. The proposal in the Bill is to move small pots, under £1,000, which are considered dormant-in other words, they have had no contributions paid in and no contact from the member with the provider for 12 months-to a consolidator scheme without member consent. My argument is simple: 12 months is simply not long enough to consider that a scheme that has not had contributions paid into it is dormant and that that member has no interest in the scheme. Imagine a woman, for example, who stops work for a period to care for loved ones or elderly parents, partners or children. They may stop contributions for quite a while longer than a year, but their pension could be moved if the provider had not been able to contact them, and their money would be put into a consolidator scheme approved by the regulator over which they had no control. Amendment 49 would extend the period before which somebody’s pot could just be taken away from one year to three years; and Amendment 50 would extend it to two years. This would give time for the Government’s correct aim of improving data accuracy to take place. We know that most pension schemes have huge errors in their data and do not always know even how to contact a member. It would also allow time for providers and trustees to trace members and for the pensions...
My Lords, once again, we have another policy designed by civil servants sipping lattés in that rather agreeable ground-floor coffee shop at 1 Horse Guards Road, safe in the knowledge that that regular monthly salary, their generous taxpayer-funded pension and their ability to work from home a couple of days a week provide that comfortable lens through which they view the world outside. But outside, in the real world, there are whole armies of people who do not do the nine to five; they live by their wits, self-employ and undertake seasonal work or term-time employment-the men or women for whom the Labour Party was established and who salt money away for their retirement when they can. Many of them work hard and ask their accountant to do the books at the end of the year. It might take some time. Neither the worker nor the accountant work to strict 12-month timescales. It might take three months to finalise the numbers in one year, nine months in the next. That is the untidy way in which the real world works. To legislate to confiscate someone’s pension after 12 months, as if it was fly-tipped by the side of the road to be swept into the dumpster of some poorly performing default scheme, amounts to theft and an abuse of trust that undermines confidence in the pension system. I totally endorse Amendment 49 in the name of my noble friend Lady Altmann for another reason as well: throughout the canon of pensions legislation, we have a three-year carryback, where people can make...
My Lords, I also support my noble friend Lady Altmann’s amendments. Whether she chooses Amendment 49 or Amendment 50 on which to divide, I will support her by voting with her. The important point here is that people’s lives are unpredictable. One reason why we are extending this even now is that the pensions dashboard is so late in helping to get people informed. Those are the sorts of issues that we are still dealing with. The sooner that people can be better informed, the more agile they will be able to be in consideration of contributions that might need to be made in the future. So, this is an important amendment. I gently say to my noble friend Lord Fuller-how can I put it?-Caxton House is not as glamorous as the Treasury pitch that he sets out. I know that officials have been working carefully on aspects of this, but it is the wrong move. It was the decision of Ministers rather than civil servants to make this recommendation. That is why I am sure that we will all be in the same Lobby.
My Lords, in a less confrontational way than the noble Lord Fuller, from these Benches, I confirm that we support Amendment 49. The Government should not fail to support this. It is in the name of noble Baroness, Lady Altmann, and it would increase the time before a pot was considered dormant in order to provide greater flexibility for savers such as mothers, those on sabbatical or mature students, who may not add to their pots for one to three years. We have no hesitation on these Benches in supporting amendment in the name of the noble Baroness, but not in quite such confrontational terms as the noble Lord, Lord Fuller.
My Lords, in continuing the spirit of good grace, I wish our Deputy Chief Whip a very happy birthday today. I will speak briefly in support of Amendment 49 in the name of the noble Baroness, Lady Altmann, which I was pleased to sign. Fundamentally, the amendment is about ensuring that we do not move too quickly to classify pension pots as dormant and, in doing so, risk making decisions on behalf of savers before they have had a fair opportunity to act for themselves. By extending the period before a pot was treated as dormant, the amendment would delay when pots became eligible for automatic consolidation. That is important, because it would reduce the risk of pots being moved prematurely, perhaps at a point when an individual was between jobs, was taking a short break, on maternity leave or simply had not yet re-engaged with their savings. It would also give savers more time to re-engage with their pension, to make further contributions and to take an active and informed decision about what they want to do with their savings. If we are serious about putting savers at the centre of this system, we must ensure that pots are not automatically consolidated after only a short period of inactivity. The new period proposed by the noble Baroness, Lady Altmann, seems to be eminently sensible. I therefore hope that the Minister will give it careful and serious consideration, and I hope she will adopt it. If not, we will be pleased to support the noble Baroness, Lady Altmann, if she...
My Lords, I thank noble Lords-at least, most noble Lords-for their contributions to that little debate. It is probably worth saying at the outset what this is about. Anyone who listened to the noble Lord, Lord Fuller, would assume, first, that theft was involved; secondly, that pots were being taken away from people; and, thirdly, that they were being taken away from hard-working, self-employed businesspeople. None of those things is true. These are pots where people have had a series of jobs, they have moved on and they have left small-value pots scattered around in different places, on which they are paying often quite significant charges, and the value of those pots is diminishing. The policy was consulted on not by civil servants sitting in Horse Guards Parade but by the previous Government in 2023. This is the proposal that was consulted on by the previous Government and I happen to think that they got this right. So too did the range of opinion that was consulted, and I will say more about that in a moment. The intention behind the policy is to capture the right dormant small pots and have them transferred to a consolidator, which will be clearly classified by the regulator as being one that has been classed as having value for money, and only to such a pot. The intention is to capture the right small pots that are genuinely dormant while avoiding transferring pots belonging to members who remain actively involved with their pension saving. Of course, no eligibility...
My Lords-
Go on. It is going to be a long day.
If a pot has been forgotten about for many years, this problem will not exist even with my amendment because it will have been dormant for over three years, if it was left behind from a long time ago. I am concerned about the people who are working at the moment who may take some time off, and to give them a better chance.
If the noble Baroness could have just a bit of patience, I am just coming to that. I ask her to bear with me for a moment. Either of the noble Baroness’s proposals to extend the period of dormancy would delay the consolidation of genuinely dormant small pots, leaving inefficiencies in the system for longer, resulting in higher costs for schemes and for members through higher charges. Where someone holds several small pension pots across multiple schemes, they will find themselves subject to multiple sets of charges over a number of years. The longer the dormancy period, the longer that members will face those charges. It is well recognised that many schemes apply a flat-fee charge structure, particularly those most affected by the proliferation of small pots, and that can compound the issue. For example, a saver with three separate small pots held across three schemes, each applying its own annual flat-fee charge, could see those charges accumulate over an extended dormancy period. If the period were lengthened to 36 months, they could face four more annual charges. Given the relatively low value of many small pots, such cumulative charges represent a significant risk of detriment to the member. On the point about people taking a career break with the intention of returning to work, in the majority of cases such members will be adequately protected by the 12-month dormancy window. The noble Baroness, Lady Stedman-Scott, mentioned maternity leave. This was looked at carefully...
My Lords, I thank the Minister for her reply. What she describes sounds very good in theory. My amendment is designed to address the issue that that theory does not work in practice in the kind of pensions world that we have right now. There will be improvements, but they are not in place yet. There is no compensation for a member whose pot is moved away to a worse scheme. They may have higher fees or they may have lower fees. They may get better performance, they may get worse performance. It should be incumbent upon all of us to make sure that there is as much protection as possible. If somebody has not paid in for years, the three-year limit will be fine because they will have exceeded it. Therefore, I wish to test the opinion of the House on Amendment 49.
Amendment 50 not moved.
Clause 23: Determination of destinations for small pots
Amendment 51
Moved by
51: Clause 23, page 25, line 22, leave out “specified” and insert “prescribed” Member’s explanatory statement This amendment corrects a mistake.
Amendment 51 agreed.
Clause 40: Certain schemes providing money purchase benefits: scale and asset allocation
Amendment 52
Moved by
52: Clause 40, page 38, line 12, leave out “and Condition 2”
Baroness Bowles of Berkhamsted
My Lords, we debated Clause 40 and the new FSMA Section 28C issues thoroughly in Committee. I am grateful to all noble Lords who contributed and to those who have spoken to me since. The amendments in this group would remove the reserve power that would allow the Government to mandate asset allocations for workplace pension savers. We will vote on Amendment 52, which is a consequential amendment, but it carries with it the business amendments-the thing that it is really about. These are Amendment 78, which would delete Section 28C, and Amendment 96, which would delete the now redundant savers’ interest test and all associated references. My objection here is one of principle. Why should government override trustees? We all know that UK pension funds have invested too little in UK assets and private markets, but we also know why: regulatory interventions, the charge cap and pressure into low-cost indices and gilts have made it difficult to invest in anything that requires governance or research. The track record of intervention is not good, yet this clause proposes more intervention. It is described as a back-up to the Mansion House Accord, to be used if industry does not deliver. But if industry does not deliver it will not be out of obstinacy; it will be because the opportunities are not there at the right price or at the right risk. Mandation does not solve that; it simply overrides fiduciary and professional judgment. Even the threat of mandation is intended to do the...
My Lords, I fully support everything that the noble Baroness, Lady Bowles, said. I am very sad to be in the position of needing to do so, because I support the Government’s aim of helping pension schemes to put more money into UK investments and growth. However, the way in which it is being done is the issue here, with unlimited powers and not incentives but diktats. If you threaten a pension scheme that, unless it does what you want, it cannot auto-enrol workers in this country then clearly that is not any kind of carrot; it is just a big stick. Incentivisation is normally what we do to encourage pension investments, and it is what we should be doing. One of my amendments would achieve that, but if the noble Baroness, Lady Bowles, is successful with Amendment 52, we will not need to go into those details. I hope that the Government, even at this late hour, will rethink their approach to have a two-step approach: to have a voluntary agreement and commit to do certain things, but then the second step would be, if the voluntary agreement was not stuck to or if schemes did not do any of the things that they said that they were going to do, that they would force schemes to do what they wanted anyway. That is not the way to make the best of people’s pensions, and I hope that the Government will think again.
My Lords, when you are trying to solve a problem, it is best to try to understand the root causes of the problem and then resolve those causes-diagnose and treat the disease, not the symptoms. That is why I have repeatedly asked the Minister why she believes UK pension funds have been so reluctant to invest in so-called UK productive assets. I know she gets frustrated with me asking this question regularly, but she has never answered it. She always responds, as she did again on 11 March, by explaining what the symptom is: that UK pension funds invest a much lower proportion in UK productive assets than international comparators. She is right, and, as noble the noble Baroness, Lady Altmann, just pointed out, I do not think any of us disagree with that, but that does not answer the fundamental question. Why are UK assets apparently so unattractive to UK pension funds? What are the barriers to investment that we need to remove? The Minister has often told us that the mandation power is just a backstop to the voluntary Mansion House agreement and probably will not be used. That is precisely the problem. It does not need to be used; its very existence is, in effect, mandation. As the Times pointed out so clearly on Saturday: “A voluntary agreement … ceases to be voluntary … if it is underwritten by the promise of compulsion”. Even if the power is not used, it still creates a fiduciary duty problem: the trustees are still, in effect, being forced to act in a way that they might...
My Lords, I speak in this mini-debate in full support of this amendment. I am extremely concerned about the principle of government directing any form of investment. I do not think any Government have a strong record on making investments, and to compel pension funds to make such investments would be incredibly dangerous. As the noble Lord, Lord Vaux of Harrowden, has so wisely said, we are setting ourselves a very dangerous precedent here that we will all-as people who want to retire at some point-live to regret. My second point is a technical one, which the noble Lord, Lord Vaux, touched on but is worth exploring slightly further: namely, the description of what a directed investment is. What is a UK investment-the sort of thing we would be told we have to invest in? Is it a company where the headquarters is domiciled in London, or that employs a certain number of people, or that does a certain thing in the UK specifically related to certain asset classes? The reality is that you will have enormous problems if you try to force money into certain parts of the economy. You will get crowding out and excess price. An example could be to force these pension funds to invest in infrastructure. You would have a crowding out of other investments into infrastructure projects that would be mispriced, and that would create problems when it came to trying to generate returns. We should be very careful about that. Prescription over investment is one of the worst things a Government can...
My Lords, I begin by declaring an interest as chief executive of NEXT plc, a company that has over 20,000 colleagues enrolled in an auto-enrolment pension. I want to convey to the Government just how worried people are at the idea that the Government are planning to mandate how their pensions-their life savings-should be invested. To be told that a percentage, as yet to be determined, should be invested in certain classes of assets, as yet to be defined, by Ministers who can give no indication as to what they want to do with these powers is deeply worrying. Good investments do not need to be mandatory. In fact, there is the inherent suspicion that investments which are compelled are unlikely to be very good investments. It is worse than that, because if the demand for certain asset classes is artificially increased then the returns are likely to fall further. Why pay a healthy return to an investor who has no choice but to invest in your class of asset? It might be argued that while mandated investments are not so good for pensioners, they will be good for the nation as a whole. This is a dangerous precedent, and it is not credible, because the Government are not well placed to allocate capital in this way. They are subject to political pressures, the competing priorities of their Back Benches, the media and the polls. I join other noble Lords in saying that the Government are not wrong to worry. The British pension funds show an alarming tendency to avoid investing in UK...
My Lords, those people who have done the right thing and saved for retirement have made a bargain with the state: in exchange for a little help on the way in, the state will be relied on a little less on the way out-that is the deal. The responsibility for finding people to look after your money lies with the individual and the trustee or investment managers they appoint. On that simple truth, London has developed global leadership in asset and investment management, and the entire City ecosystem has created a tax gusher that pays for defence, schools and hospitals. We should not place it or its reputation under threat. We have heard a lot from the Dispatch Box over the last 12 months or so about the sort of investments that the Government think we should invest in. We need to learn some lessons from history. One such investment is green schemes, forgetting that when they tried this under political direction in Sweden it created the $5.8 billion Northvolt disaster and all the public sector pensioners lost their shirts. The Minister from the Dispatch Box lionised the large Canadian public sector schemes as the model that should be followed. Last year, their investment returns went down by 5%, at the same time as our own LGPS went up by 9%. Ministers want schemes to backfill UK infrastructure, and perhaps steel, which we now learn could cost us over £1 billion in a little over a year-money that will never be seen again-or carbon storage and passive funds, which, by arithmetic,...
My Lords, I declare my interest as an employee of Marsh, whose sister company Mercer is a pension consultancy, master trust provider and signature to the Mansion House Accord. I speak in strong support of this group, beginning with Amendment 52, which would remove the power to mandate asset allocation while preserving the requirement on scale. This is a targeted, proportionate change. It keeps the legitimate objective of ensuring sufficient scale in the market without stripping trustees of the fundamental responsibility to make investment decisions. I have never supported-and it has become abundantly clear in recent weeks that the bulk of industry does not support-the Government’s proposed power to mandate asset allocation. I have listened carefully over the past weeks to Ministers in both Houses, who say that these clauses are simply a reserve power intended to ensure that the Mansion House Accord operates. Even accepting that characterisation, the House should not lose sight of two important points. First, the schemes that signed up to the accord did so in good faith and with trustee agreement. Secondly, those signatories did so on the basis of explicit caveats-caveats that recognised trustees’ fiduciary duties, the necessity of a reliable pipeline of assets and the imperative that the market shifts from a narrow focus on cost to a broader assessment of value across the whole investment chain, including by clients. It is therefore deeply disappointing to see the Government...
I signed Amendment 52 in the name of the noble Baroness, Lady Bowles of Berkhamsted, because-let us be candid about this-this is not the Government’s money. There seems to be an attitude that, because the Government use tax relief in other ways to encourage people to invest in private pensions, all of a sudden they are somehow going to tell people what to do with their cash-instead of putting government taxpayers’ money into those projects-just because that cash is not being invested in projects the Government want. Even auto-enrolment, which has been a force for good, is not mandatory; people can opt out. There has always been a recognition that it is somebody’s salary, and so it is their choice what they do with their take-home pay. The approach in the Bill goes completely against that because-I will not use unparliamentary language-the Government are almost blind to the fact that it is not their money. My particular concern is that there never was a human rights impact assessment. I have written to the Attorney-General to understand that, because I think this could well be covered, in effect, as personal property under Article 1, Protocol 1 of the ECHR. Yet the Government seem quite happy to say that this meets the human rights test. We have never seen that backed up, so I would be grateful if the Minister could publish any assessment they have done before we get to Third Reading. To be straightforward, this is the wrong approach. The voluntary accord is the right...
My Lords, we know that a much higher percentage of pension fund assets could happily be invested in UK assets; indeed, that was the case when I was managing pension funds. It is not the case now entirely because of what politicians have done to the system. We should seek to undo that, not fudge it, as the noble Lord, Lord Vaux of Harrowden, said. My recommendation to the Government is that, rather than giving themselves power, they should give pensioners and investors in pension schemes power. There are structures in the Bill that allow pensioners to express their opinions on what their money is being invested in, but nothing that gives any effect to that. I suspect that most of us receive our annual returns from the pension funds we are part of and put them straight in the bin, because there is nothing we can do with them. We ought to be in a position to do something that would have an effect. I recommend that the Government choose that route rather than the one they have chosen.
My Lords, of all the amendments we have tabled and discussed on this Bill, for me, this group is the most important. Mandation is, rightly and understandably, the most contentious part of the Bill. I am grateful to all noble Lords who have helped raise awareness of this issue, which, as I am sure the Minister is aware, has garnered a lot of attention-and criticism-outside of this place. The ABI has written to the Minister in the other place, Torsten Bell, to warn him of its “serious concerns” about the mandation power, saying that it is “not necessary” for the Government to mandate investment. It has asked the Government to withdraw this part of the Bill. Pensions UK has been unambiguous on this point. It too has called on the Government to remove this power from the Bill, warning that it would harm “free and open market competition aimed at driving better saver outcomes”. It has said that mandation would “put those outcomes at risk”. More recently, Paul Johnson, formerly of the IFS, wrote strongly against mandation in an article in the Times . Just the headline and strapline will give the Minister all the information she needs: “Telling pension funds where to invest will not end well. The government’s desire to boost UK assets is understandable, but overriding the fiduciary duty of trustees crosses a line”. The industry is clear, the experts are clear and much of this House is clear that the Government should not be directing private sector investment. It is obvious that...
My Lords, as we have heard, the combined effect of these amendments would be to remove from the Bill the Government’s reserve power to require certain pension schemes to hold a prescribed percentage of their assets in qualifying assets. As the noble Baroness, Lady Bowles, indicated, we explored this territory in some depth in Committee, and noble Lords made a number of detailed and considered arguments. It has been good to have an opportunity to talk to a number of colleagues since then and to discuss their concerns. The Government have reflected but continue to regard the asset allocation reserve power as a necessary part of the reform package that this Bill introduces, and I will set out why. The headline case is that there is strong evidence that savers’ interests lie in greater investment diversification than we see today in the DC market, and there is probably broad agreement on that. DC pension providers themselves have recognised this. A small allocation to private markets, as part of a diversified portfolio, offers the potential for better risk-adjusted returns over the long term. But despite that recognition, many providers are not yet acting on it. That is not because diversification is against savers’ interests. It is in significant part because of competitive dynamics, the pressure to keep headline costs as low as possible in order to win and keep new business from employers, and the difficulty of any single provider moving ahead of the market. This is not just...
My Lords, does the Minister not recognise that in most industries, moving ahead of your competitors is an advantage, not a disadvantage? It is certainly not a reason not to move in the right direction.
It depends on how the market is structured. The decision-makers here are employers. Let us look at what happened under the Mansion House Compact, the predecessor of the accord, brokered under the previous Government. The words were that “‘too much focus on cost’ remains the key barrier”. In other words, we have a market in the employment sector where the focus has been for too long on cost, not value. The noble Lord shakes his head, but we have heard this from around the House. Indeed, in Committee many people who do not agree with this power accepted the underlying diagnosis, and that is the basis on which the Government are proceeding. The Government want the industry to invest in the full range of assets. One of the reasons, I suspect, that the Mansion House Accord is moving together is to make sure that it is clear that the market is going in that direction. That is the problem, we think: there is a risk of a failure of collective action. The accord is a commitment. The power gives providers assurance that the whole market will move so that they will not then be in a position where somebody faces a competitive advantage by reverting back to focusing on cost and not on value.
As I understand the noble Baroness’s argument, the focus on cost is the problem. This Bill solves that with the value-for-money framework, so why do we also need the mandation power?
This all comes as a package. A lot of attention is focused on this particular reserve power, but in fact it is the combination of all the elements of the Bill that we discussed in some detail in Committee over recent weeks: the question of the investment in scale, the need for the value-for-money framework, the need for the option to consolidate small pots. All these things come together to create the conditions in which this will work. This reserve power is to address a particular question, the risk of collective failure. I fully accept that the noble Lord does not agree with it, but I want at least to have the opportunity to make the argument as to why the Government are proposing to do it in this way. The Mansion House Accord represents a voluntary commitment by 17 of the UK’s largest DC pension providers to invest 10% of their default funds in private markets, at least half of that in the UK, by 2030. We continue to be encouraged by progress, but the risk of a collective action failure in this market has long been recognised. As I said, individual providers face strong commercial incentives to keep costs low and to defer action until others move first. The reserve power exists as a backstop to ensure that if voluntary progress stalls, the Government have the means to act. Its presence in the Bill sends a clear signal that the commitment to change is underpinned by more than good intentions, and it helps to give each provider confidence that the rest of the market will...
Baroness Bowles of Berkhamsted
My Lords, I thank all those who have spoken. The overwhelming view is still that this power goes too far. Many of the issues on which the Minister comments are around cost but, as I said, the whole focus on cost has been brought about by regulation. Changing to value for money will, I hope, adjust that, although I have concerns that it will still be too bound up. But the more I listen to the Minister, the more I hear that there is a deliberate intent for market manipulation and control. That really worries me, because it does not seem to be at all market sensitive or prepared to use what is supposed to be one of the strengths of this country-its asset management. I think this is dangerous and market distorting, even without any legal effect. As has been eloquently said, it is the wrong direction of travel-I thank the noble Lord, Lord Wolfson, for that reminder. I wish to test the opinion of the House.
Amendments 53 and 54
Moved by
53: Clause 40, page 38, leave out lines 24 to 28 Member’s explanatory statement This amendment, connected to others in the name of Baroness Bowles of Berkhamsted, seeks to remove provision on the asset allocation condition from Chapter 3, while preserving provision related to the scale condition.
54: Clause 40, page 38, line 29, leave out “or 2(b)” Member’s explanatory statement This amendment, connected to others in the name of Baroness Bowles of Berkhamsted, seeks to remove provision on the asset allocation condition from Chapter 3, while preserving provision related to the scale condition.
Amendments 53 and 54 agreed.
Amendment 55
Moved by
55: Clause 40, page 38, line 34, at end insert- “(c) able to demonstrate that they deliver investment performance which exceeds that achieved by the average of all Master Trusts which hold an approval under section 28A in respect of a main scale default arrangement.”Member’s explanatory statement This amendment allows Master Trusts which deliver good investment performance to be excluded from the scale requirements.
My Lords, Amendment 55 is in my name and those of my noble friends Lady Stedman-Scott and Lady Neville-Rolfe, and the noble Baroness, Lady Altmann. I will also speak to Amendments 60 and 94 in this group. This group of amendments concerns the so-called scale requirement in Clause 40. In practice, the Government’s proposals concentrate only on size, with a vision of the DC pensions provision landscape comprising 20 or so schemes with assets of over £25 billion. I have no quarrel with the proposition that the current pensions landscape is too fragmented, which may well have contributed to investment returns for some pension savers that have not been good enough. It is, however, a massive and unwarranted logical leap to move from that proposition to the proposals in the Bill, which mean that virtually all schemes with below £25 billion of assets will cease to exist in a few years’ time. The plain fact is that investment returns do not correlate with the size of assets under management. When the Government produced their report on pension fund investment and the UK economy in November 2024, it was disarmingly honest. It said: “The evidence linking pension provider scale and gross investment returns is mixed … Across the AUM spectrum, there are examples of small, medium and large-sized schemes with both high and low gross returns”. It also said that studies suggested broadly a wide range of benefits of around £25 billion to £50 billion, in particular the ability to invest in...
Despite this, in Committee, the Minister said that the Government
“are absolutely committed to the belief that scale matters ”.-[ Official Report , 22/1/26; col. GC 204.]
She seemed to rest this absolute commitment on the ability of larger schemes to invest in asset classes that produce better returns. The Government must know that there is no magic formula for achieving superior returns and that all asset classes can produce both good and bad performances. The current experience in private equity and private debt is proving just that position. In trying to legislate smaller pension schemes out of existence, the Government have lost sight of the one essential truth, which is that what matters is the size of savers’ own pension pots, not the size of the investment vehicle.
My Amendments 55 and 60 seek to turn the Bill’s focus to returns for savers. They apply to master trusts and group personal pension plans respectively, and they would allow these schemes to be excluded from the scale requirements if they achieve above-average returns, so that consolidation is not forced on smaller schemes that are doing well for their pension savers. Amendment 94 concerns the new entrant pathway and would allow for the potential for achieving above-average returns to be considered as an alternative to the potential for achieving the size requirement.
I will make one final point on scale. The Bill entrenches the competitive position of large pension providers. It is significant that many of them have lined up to contend the mandation provisions, which we have just removed, but have remained silent on the scale requirements-of course they have. It is like Christmas coming early several times over-the ability to knock a large number of high-performing competitors out of the market without lifting a finger. We should not let that happen.
My noble friends on the Front Bench have tabled Amendment 77, which is a much more sophisticated approach to the issue of scale than my amendments in this group, because it includes a wider range of factors than investment returns and is a more complete route to expressing what is really meant by scale. I have added my name to that amendment, and if my noble friends wish to move it, I will withdraw mine at the end of this debate. I beg to move.
My Lords, the Government are obsessed with size, but everyone knows that it is not about size but what you do with it. That point was made forcefully in the Financial Times this morning, which discussed the fact that the larger funds are not necessarily better performers, with the sub-headline: “Seeking size for its own sake can distract fund managers from focusing on clients and shareholders”. There is so much I can say, but I will restrict myself to one substantive point. When schemes get large, their normal market investment size gets bigger too. They do not have the time, capacity or need to go away from the big global stocks, most of which are, by their nature, overseas. It limits the constellation of investment ideas, so they chase the same MSCI stocks, creating a value-destroying bubble and systemic risks by all chasing the same thing. It becomes all about speculation. That is not necessarily what capital markets are for. Capital markets exist to provide capital so that smaller companies can become big ones. Right now in the UK, there are lots of smaller companies with bright ideas and great prospects that could become bigger if only they were relevant to the funds-a few million pounds here, perhaps a few tens of millions there. But they are all but invisible to the superfunds, for which anything less than half a bar is a rounding error. The problem for the UK is that, while Ministers are worshipping the false icons of scale, they will actually make it harder for the...
My Lords, I speak in favour of Amendment 55, in the name of the noble Baroness, Lady Noakes. There is a questionable theory of change in the Bill-that bigger pension schemes are necessarily better, suggesting the minimum scale of £25 billion. While scale certainly creates advantages, Australian experience suggests that funds can be run at less than this size and still provide value and good outcomes for members. However, concentrating the market into a few megafunds introduces a new system of risk, of schemes that become too big to fail and so are effectively the state’s problem. Also, megafunds are unlikely to allow for nuance and specialism, such as faith-based funds. Unfortunately, the understanding of faith-based funds in the commentary on the Bill seems to be limited to Sharia-compliant funds and exclusions. The understanding of and engagement with the nuances of faith-based investing in the Bill commentary are superficial at best. There may be perfectly good arrangements with faith-based or ethical distinctiveness; such arrangements may perform well for members in financial and non-financial terms and be significantly smaller than the threshold envisaged. The distinctiveness that they offer might easily be lost in generic megafunds. This amendment makes the important point that absolute size and performance for members need not be correlated.
Obviously, I support Amendment 55 and a number of the other amendments in this group, but I urge the Minister to consider the dangers of trying to engineer a few large schemes while at the same time knocking out new entrants and competition. From now to 2030, if a scheme is not yet at the £25 billion scale requirement, it will find-and it is finding, such as in the case of Penfold-that it cannot get new business. The employer cannot be confident that it will reach the £25 billion in time, and knows that it could potentially have to change provider. This requirement is undermining innovation and competition in the market right now, and may continue to do so. I hope that the Minister will recognise the dangers. I apologise to the House, as I should have declared my interests. As stated in the register, I am a non-executive director of a pensions company and an adviser to a pension master trust.
My Lords, I think that everybody in your Lordships’ House wants good investment, whichever side of the House we are on. If you are investing, with apologies, sometimes faith is not enough-you have to see what happens in the market. It is about the choices that are made. These amendments would allow pension schemes to demonstrate a strong investment performance or innovation in members’ services and administration to be exempt from the scale requirements set out in the Bill, and would introduce greater flexibility on how scale is assessed, including recognising assets held across multiple arrangements. The amendments reflect concerns that the Bill places disproportionate emphasis on size rather than outcomes, risks disadvantaging smaller or newer entrants and may reduce competition and innovation in the pensions market without clear evidence that larger schemes consistently deliver better returns for members. Amendment 77 would allow exemptions to scale requirements if the regulator deemed that there was no evidence of improved outcomes for members in the case of a proposed merger to meet the scale requirements. This would make sure that members’ interests are protected. On these Benches, we support Amendment 77, and if it comes to a vote, we will support it.
My Lords, I thank all noble Lords who have amendments in this group, which broadly seeks to refine the Government’s scale requirement as set out in the Bill to reflect the fundamental principle that size is not everything. We have heard a lot about that in this short debate. For the sake of brevity, I shall limit my remarks to my Amendment 77. The scale requirement as currently framed is too blunt an instrument. It risks prioritising size over quality, process over performance and structure over outcomes-in other words, it risks innovative and high performing funds merely because they are small. These remarks have been echoed by the noble Baroness, Lady Altmann. The central question we must always ask in pensions policy is: does this improve outcomes for savers? This was the essence of my noble friend Lord Fuller’s remarks. If the answer is no, then we should think very carefully before proceeding. When this power comes into force, it will bring into scope schemes that are already delivering strong outcomes-schemes that are well run, well governed and performing effectively for their members. In such cases, forced consolidation is not just unnecessary but may be actively harmful. It risks disrupting successful investment strategies, increasing costs and ultimately undermining the very outcomes that we are seeking to improve. This amendment would introduce a vital safeguard. It would give the regulator the discretion to recognise where consolidation would not benefit members...
My Lords, Clause 40 delivers the Government’s commitment to ensure that DC workplace pension savers benefit from the advantages that flow from scale and consolidation. The framework that the Bill establishes for scale is integral to securing better member outcomes, improved access to productive investment and stronger in-house capability. Evidence shows that scale can bring the ability to invest in diversified assets as well as lower member fees and investment costs. There is also evidence that scale can enable greater investment and governance capability in running a scheme. As DC schemes become more complex, these things will drive improved member outcomes and support the delivery of an income in retirement. We had a debate on various issues in Committee, and one of the questions was about scale and competition in the marketplace. I reassure the House that the Government have considered this. Our analysis suggests that, once the scale measures have taken effect, there will be 15 to 20 master trusts and GPP megafunds operating. There are a number of amendments in this group, and I will try to say something briefly about each. First, on the amendments that seek to add further exemptions to scale, the Government’s policy in this area is to allow day one exemptions that are based on a scheme’s permanent design characteristics. In other words, it should be as clear as soon as the regulations are in place whether a scheme meets an exemption, rather than it being subject to...
Recent investment performance may not be reflective of a good long-term investment strategy. Within the UK, the highest-performing multi-employer schemes have often been driven by exposure to overseas-in effect, US-equities. That may have been effective for the last five to 10 years, but markets have been more volatile recently, and it may not be the right strategy for the future. Our modelling shows that diversification, where assets are spread across a wider range of assets, can help increase long-term performance.
Another concern is the temporal nature of an exemption based on performance. Past investment is obviously not a guarantee, and there may be occasions under this proposal where a scheme that has previously met the proposed exemption, and is not at scale, subsequently does not deliver investment performance that exceeds the average of those at scale, with the result that they no longer qualify for such an exemption. That is not stable for members or employers and does not act in members’ interests.
I believe that the intention of Amendment 67, from the noble Viscount, Lord Younger, is to provide an innovation exemption to scale for small schemes. As drafted, the Bill already enables new and innovative providers to apply for the new entrant pathway, and for existing market participants to utilise the transition pathway, which provides a longer period to build to scale. It is important to recognise that scale will change the landscape. Schemes that have scale will have the tools to deliver on value and performance in a way that small schemes will not in that future landscape. For the record, I note that the amendment, as tabled, would apply only to master trusts and not to GPPs. In addition, it does not set out what the criteria for an innovation exemption would be and appears to include it as an extra criterion for scale rather than as an alternative to it.
Amendment 56, from the noble Baroness, Lady Altmann, would allow a master trust with an innovative approach to member communication or administration to be exempt from the scale measures. Innovation in those areas is very welcome, and it may aid member engagement and service quality, but those are not appropriate proxies for the benefits that scale can bring. They will not drive more diversified investments, greater returns or lower fees, nor will they necessarily improve governance. Again, I note that this amendment, as tabled, would apply only to master trusts and not to GPPs.
In a similar vein to Amendments 55 and 60, Amendment 94, from the noble Baroness, Lady Noakes, seeks to enable a scheme to qualify for the new entrant pathway if it can deliver strong investment performance as an alternative to the ability to grow to scale over time. The Government’s view is that a strategy to grow to scale will be fundamental for a new entrant in the market. We fully realise that this will be over a period of time, but we do not agree that investment performance can work as an alternative. It is difficult to envisage how a new entrant would demonstrate this when they apply for approval; they will have no assets or performance record to demonstrate that they will be able to deliver above the average achieved by a scheme at scale. That would give the regulators a difficult task in seeking to make an assessment based on long-term assumptions. I am also concerned about the stability of this approach. What happens if and when the scheme does not exceed its investment performance? That would not offer the stability that members or employers need, and they would want to join a new scheme.
Finally, on exemptions, I turn to Amendments 77 and 107, from the noble Viscount, Lord Younger. These set out a power to create an exemption, presumably to be granted on application, for a regulator to treat a scheme as meeting scale if there is no reasonable evidence that consolidation of the scheme would improve member outcomes. While I understand the intent behind these amendments, I have the same concern as those I have set out already: the approach is simply unstable.
Amendment 77 does not consider what a future, rather than the current, landscape could look like and what it could deliver. Schemes at scale will have the means to deliver member outcomes in a way that smaller schemes will not, because scale enables greater expertise, efficiencies and buying power. The benefits of scale are wide-ranging. It is not as simple as isolating and trading off known pros and cons of individual consolidation decisions; the scale measures will reshape the whole market for the good of members, and the benefits from that broad restructuring will be delivered long into the future.
This amendment asks regulators to make quite an extraordinary judgement. The criteria set out in the amendment are loosely and broadly termed, and we must assume that they would be highly contested by schemes. Working out the exact standard that the regulator is supposed to apply could ultimately be a matter for the courts, adding years to the process and ultimately leading to increased costs for members, while still not delivering the benefits of scale.
A scheme that may be approved as having an exemption would presumably have to be subject to regular review and, if it were to lose the benefit of that exemption, it would expose members to risk and be a cost for employers in seeking alternative provision. That may in turn mean that schemes with an exemption such as this may struggle to attract business if there are concerns that they may not remain in the market over the long term compared to a scheme with scale. Taken together, this is a recipe for greater uncertainty and instability. This would serve no one well, least of all the members. This compares to the Government’s vision for a stable market of schemes with scale, as well as space for disruptors, with the tools and capability to deliver for members and the economy.
Amendments 69 and 75, from the noble Baroness, Lady Altmann, would remove from the Bill the scale threshold of £25 billion and instead grant the Secretary of State the power to set it in regulations. I will not dwell on this, as she did not, but we discussed this at some length in Committee. The evidence for the threshold has been set out in our published impact assessment, and the figure has been consulted upon and discussed. It is a fundamental, central pillar of the policy, and it is right that we give certainty about this now, at the earliest point. It is by this metric that the industry is preparing for scale now.
Amendments 71 and 76, from the noble Baroness, Lady Altmann, seek to ensure that a master trust or GPP can manage assets without being mandated to follow a common investment strategy. That would drive away delivery of the benefits of scale, as a common investment strategy is important to the operation of the main scale default arrangement. In fact, it is the mechanism by which the benefits of scale are actually realised. It provides consistent governance over a unified pool, lower fees and access to a broader range of assets.
The same arguments apply to Amendments 64 and 65, which the noble Baroness, Lady Altmann, has tabled along with a number of consequential amendments. Both of these amendments would require a regulator to approve a master trust as meeting the scale requirement if it has £25 billion in a main scale default arrangement or across a number of default arrangements.
The intent of Amendment 64 appears to be to allow members to be invested in default arrangements that suit their circumstances. I understand the aim, but the vast majority of members do not engage with their pension. These measures are needed to ensure that schemes are working to give them better outcomes. However, these amendments would again drive away from the benefits of scale.
I stress that the Bill requires a main scale default arrangement at the heart of a scheme, but it does not prohibit or cap other default arrangements if they meet a member need. Therefore, the amendment would not be needed in any case.
In response to the right reverend Prelate the Bishop of Hereford, the Government have considered faith-based and ethical funds carefully. Schemes that are set up solely for the purpose of a religious consideration will be exempted and not meet scale. Should a scheme wish to have a default arrangement for a religious or ethical need, that would be accommodated and not prohibited by scale.
Government Amendments 93, 95 and 171 are minor amendments to correct the current drafting of the Schedule and Clause 40. Amendment 171 makes a minor, technical correction to the Schedule at paragraph 12(3) to ensure that the Pensions Regulator can issue codes of practice in relation to the scale measure and approval at scale or on to a pathway in particular.
Government Amendments 93 and 95 are to Clause 40(12) and specifically to the new Sections 28E and 28F of the Pensions Act 2008. These are the sections that deal with the two pathways. The amendments correct an inconsistency in Clause 40 over regulation-making powers for applications and approvals to these pathways and a scheme at scale.
This has been a useful debate, but I hope that my explanations are enough to persuade noble Lords, and especially the noble Baroness, Lady Noakes-I live in hope-not to press their amendments and to support the government amendments.
I am going to disappoint the Minister. There is just a fundamental disagreement: the Government think that size is the most important thing and most of the rest of us think that the judgment on which schemes should be allowed to survive the initial cull that consolidation will require should be much more nuanced and based on what is good for savers. If schemes are delivering for savers and have the capacity to deliver for savers, they ought to be allowed to stay within the population of pension schemes that will continue. The Government seem not to trust their own value-for-money test, which should deliver over time. If schemes that are allowed through at the moment disappoint over time, the value-for-money test would deal with that. We think that taking scale out will, with the value-for-money test, in the long term produce exactly what the Minister requires, which should be good returns for pension savers. I said that I would not move my amendment because my noble friend on the Front Bench will be moving his Amendment 77. On that basis, I beg leave to withdraw.
Amendment 55 withdrawn.
Amendment 56 not moved.
Amendments 57 to 59
Moved by
57: Clause 40, page 38, line 38, leave out “or Condition 2” Member's explanatory statement This amendment, connected to others in the name of Baroness Bowles of Berkhamsted, seeks to remove provision on the asset allocation condition from Chapter 3, while preserving provision related to the scale condition.
58: Clause 40, page 39, line 12, leave out “or the conditions for approval under section 28C” Member's explanatory statement This amendment, connected to others in the name of Baroness Bowles of Berkhamsted, seeks to remove provision on the asset allocation condition from Chapter 3, while preserving provision related to the scale condition.
59: Clause 40, page 39, leave out lines 31 to 33 Member's explanatory statement This amendment, connected to others in the name of Baroness Bowles of Berkhamsted, seeks to remove provision on the asset allocation condition from Chapter 3, while preserving provision related to the scale condition.
Amendments 57 to 59 agreed.
Amendment 60 not moved.
Amendments 61 to 63
Moved by
61: Clause 40, page 40, line 19, leave out “or the conditions for approval under section 28C” Member's explanatory statement This amendment, connected to others in the name of Baroness Bowles of Berkhamsted, seeks to remove provision on the asset allocation condition from Chapter 3, while preserving provision related to the scale condition.
62: Clause 40, page 40, line 28, leave out “or 2” Member's explanatory statement This amendment, connected to others in the name of Baroness Bowles of Berkhamsted, seeks to remove provision on the asset allocation condition from Chapter 3, while preserving provision related to the scale condition.
63: Clause 40, page 40, line 32, leave out “or 2” Member's explanatory statement This amendment, connected to others in the name of Baroness Bowles of Berkhamsted, seeks to remove provision on the asset allocation condition from Chapter 3, while preserving provision related to the scale condition.
Amendments 61 to 63 agreed.
Amendments 64 to 76 not moved.
Amendment 77
Moved by
77: Clause 40, page 45, line 31, at end insert- “28BA Exemption from scale requirement(1) The Secretary of State may by regulations provide that the Regulator may determine that a relevant Master Trust or a group personal pension scheme is to be treated as meeting the scale requirement in section 28A or 28B if the Regulator is satisfied that the condition in subsection (2) is met.(2) The Regulator must be satisfied that there is no reasonable evidence that consolidation of the scheme into another arrangement would be likely to improve outcomes for members.(3) In determining whether the condition in subsection (2) is met, the Regulator must have regard to-(a) net risk-adjusted investment performance;(b) governance quality and operational capability;(c) whether the scheme benefits from integrated, pooled or cross-scheme investment arrangements not reflected solely in the total value of assets counted under section 28A(4) or 28B(4); (d) whether the scheme invests wholly or substantially in a default arrangement operated by another scheme or manager meeting the scale requirement;(e) whether the scheme derives material investment benefit from participation in a wider asset management group of substantial scale.(4) Regulations under this section may make provision about-(a) the duration, renewal and withdrawal of a determination under subsection (1);(b) reporting and disclosure requirements.”
My Lords, I have spoken to my amendment and as warned in my remarks, I wish to test the opinion of the House.
I must advise the House that if Amendment 78 is agreed to, I cannot call Amendments 79 to 92, by reason of pre-emption. Amendment 78
Moved by
78: Clause 40, page 45, line 32, leave out from beginning to end of line 19 on page 48 Member’s explanatory statement This amendment, connected to others in the name of Baroness Bowles of Berkhamsted, seeks to remove provision on the asset allocation condition from Chapter 3, while preserving provision related to the scale condition.
Amendment 78 agreed.
Amendments 79 to 92 not moved.
Amendment 93
Moved by
93: Clause 40, page 49, leave out lines 23 to 31 and insert- “(7) Regulations may make provision of a kind mentioned in section 28A(10) or (11); and for this purpose a reference in those provisions-(a) to an approval under section 28A is to be read as a reference to an approval under this section; (b) to a relevant Master Trust is to be read as a reference to a relevant Master Trust or a group personal pension scheme;(c) to the trustees or managers of a relevant Master Trust is to be read as a reference to the trustees or managers of a relevant Master Trust or the provider of a group personal pension scheme.”Member’s explanatory statement This amendment correct a consistency mistake and provides for regulations about approvals under inserted section 28E of the Pensions Act 2008 to make equivalent provision to regulations about approvals under inserted section 28A of that Act.
Amendment 93 agreed.
Amendment 94 not moved.
Amendment 95
Moved by
95: Clause 40, page 50, leave out lines 11 to 20 and insert- “(3) Regulations may make provision of a kind mentioned in section 28A(10) or (11); and for this purpose a reference in those provisions-(a) to an approval under section 28A is to be read as a reference to an approval under this section;(b) to a relevant Master Trust is to be read as a reference to a relevant Master Trust or a group personal pension scheme;(c) to the trustees or managers of a relevant Master Trust is to be read as a reference to the trustees or managers of a relevant Master Trust or the provider of a group personal pension scheme.”Member’s explanatory statement This amendment correct a consistency mistake and provides for regulations about approvals under inserted section 28F of the Pensions Act 2008 to make equivalent provision to regulations about approvals under inserted section 28A of that Act.
Amendment 95 agreed.
I must advise the House that if Amendment 96 is agreed to, I cannot call Amendments 97 and 98, by reason of pre-emption. Amendment 96
Moved by
96: Clause 40, page 50, line 28, leave out from beginning to end of line 16 on page 51 Member’s explanatory statement This amendment, connected to others in the name of Baroness Bowles of Berkhamsted, seeks to remove provision on the asset allocation condition from Chapter 3, while preserving provision related to the scale condition.
Amendment 96 agreed.
Amendments 97 and 98 not moved.
Amendments 99 to 101
Moved by
99: Clause 40, page 51, line 24, leave out “or 28C” Member’s explanatory statement This amendment, connected to others in the name of Baroness Bowles of Berkhamsted, seeks to remove provision on the asset allocation condition from Chapter 3, while preserving provision related to the scale condition.
100: Clause 40, page 52, line 29, leave out “or 28C” Member’s explanatory statement This amendment, connected to others in the name of Baroness Bowles of Berkhamsted, seeks to remove provision on the asset allocation condition from Chapter 3, while preserving provision related to the scale condition.
101: Clause 40, page 52, line 36, leave out “or (7B)” Member’s explanatory statement This amendment, connected to others in the name of Baroness Bowles of Berkhamsted, seeks to remove provision on the asset allocation condition from Chapter 3, while preserving provision related to the scale condition.
Amendments 99 to 101 agreed.
I must advise the House that if Amendment 102 is agreed to, I cannot call Amendments 103 and 104, by reason of pre-emption. Amendment 102
Moved by
102: Clause 40, page 53, line 19, leave out subsection (13) Member’s explanatory statement This amendment, connected to others in the name of Baroness Bowles of Berkhamsted, seeks to remove provision on the asset allocation condition from Chapter 3, while preserving provision related to the scale condition.
Amendment 102 agreed.
Amendments 103 to 105 not moved.
Amendment 105A
Moved by
105A: Clause 40, page 54, line 16, after “regulations)” insert- “(a) after subsection 1, insert-“(1A) In making regulations under section 20(1A), 20(1C), 26(7A), 28A, 28B, 28E, 28F and 28J the Secretary of State must have regard to-(a) the encouragement of innovation in the design and operation of pension schemes, and(b) the benefits of competition among providers of pension schemes.”;”Member’s explanatory statement This amendment would require regulations concerning the operation of the scale provisions in clause 40 to have regard to innovation and competition.
My Lords-
My Lords, the noble Baroness, Lady Noakes, has graciously allowed me to intervene briefly. Earlier today during Question Time there were two Questions which involved insurance. I forgot to mention my insurance interests in the register. I would like to update the House’s record for that.
My Lords, I am sorry for forgetting having agreed to that intervention. In moving Amendment 105A, I will also speak to Amendments 114 and 115 in this group. I thank my noble friends Lady Stedman-Scott and Lady Neville-Rolfe for adding their names. In the previous group, we concentrated on size not being everything when determining which pension schemes will be allowed to live on after the consolidation enforced by the scale requirements. My noble friend’s Amendment 77, which the House has just agreed to, has modified the size test. However, even with that important change, the scale requirements will represent a major market intervention by the Government. It is the DC schemes market that I am addressing with these amendments. My amendments focus on the role of competition and innovation. The one thing that we really need in the long term is a market that will continue to evolve and work for the interests of pension savers. The one thing that we do not need is a mature market consisting of a limited number of large players untroubled by the potential for market disruption. Mature markets can still be competitive and there would be incentives to innovation within a mature market, but that innovation tends to focus on incremental and often process-based improvement. The plain fact is that factors such as incumbent inertia and investment in legacy systems act as counterweights. Disruptive innovation is typically associated with new entrants that spot underserved markets,...
My Lords, I support Amendment 105A and the proposed new clause in the name of my noble friend Lady Noakes, to which I added my name. It is essential, in my view, to require the regulations to be pro-innovation and pro-competition rather than over-exclusionary. The £25 billion minimum provided for in the Government’s reforms seems set to deter innovation. My noble friend Lady Noakes has explained the case and the reach of our proposal very well, so I will not speak at length. I was a trustee of the pension fund at Tesco, which at the time was worth less than £25 billion. We were innovative: we invested in private equity, including US private equity, when others did not, and we had part of our portfolio in housing-just the sort of innovation that the Chancellor is seeking to encourage. However, today that would not be seen as innovation. I am sure that my successors are looking at today’s innovative investments: fintech, quantum, space, rare earths, new types of weapons and other types of disruptive innovation. I have also been struck by the arrival in the pensions market of online-only operators. They started small, made good returns and are a growing part of the market.
The trouble is that, unless our amendment is accepted, we will not see this kind of innovation in future. The 15 to 20 master trusts will rest on their laurels, without the risk of too much competition from smaller schemes. Indeed, we heard earlier that the Government are hoping to keep costs up, apparently in the interests of the health of the big schemes. This will be very bad for returns to savers and for our UK pension industry. If the Government do not keep innovation and competition in mind when they make regulations under this Act, we will have a less successful pension sector. I encourage the House to continue the good work and to vote for my noble friend Lady Noakes’s amendment, as it has done for other sensible amendments today.
My Lords, this degrouped set of amendments is very narrow in drafting but, we believe, important in principle. Amendments 105A, 114 and 115 would require the Secretary of State and the reviews and regulations under these clauses to have regard to innovation and competition in the design and operation of pension schemes and in the treatment of non-scale default arrangements. On these Benches, we strongly agree with the proposition that pension legislation should not inadvertently-this is the problem-freeze the market in favour of the largest existing players. Whenever the Bill pushes schemes towards fewer, larger structures, we believe that Parliament must ask what happens to specialist providers, digital entrants, more tailored propositions and competitive pressure generally. A market that is tidy-tidy is not always right-for Ministers but closed to challengers does not necessarily serve savers well. This concern was expressed repeatedly in Committee. The critique of the Bill’s scale provisions has been not simply that small is beautiful but that innovation can come from schemes that do not yet meet an arbitrary threshold and that competition itself is one of the mechanisms by which member outcomes improve. I have spoken in this vein on earlier parts of this Bill, warning against an overemphasis on size, which may crush newer entrants and reduce competitive discipline in the market. There is nothing radical about asking Ministers to have regard to innovation and competition....
My Lords, I thank my noble friend Lady Noakes for her amendments in this group and I am grateful for the helpful remarks made by my noble friend Lady Neville-Rolfe and the noble Lord, Lord Palmer. These amendments recognise an important point: a rigid, one-size-fits-all approach risks crowding out innovation, flexibility and ultimately better outcomes for savers. Schemes are not identical, nor are their members, and it is entirely right that providers should be able to design different default arrangements to meet different needs. Amendment 105A is especially important in this regard. It would require regulations concerning the operation of the scale provisions in Clause 40 to have regard to innovation and competition. The Government have said time and again that they are pursuing a growth mission and that growth will underpin their ability to fund day-to-day spending. Yet what we have seen instead is very different: an ever-greater reliance on taxation to plug the gap, something that is not only economically damaging but ultimately unsustainable for the country. The noble Lord, Lord Palmer, put it well. If the Government are serious about growth, then they must be serious about fostering innovation and competition in sectors such as pensions. Recognising and ensuring that innovation is not stifled is a practical and constructive way to support that mission. This amendment does exactly that. It ensures that, in shaping the regulatory framework, the Government actively...
My Lords, I am grateful to the noble Baroness, Lady Noakes, for introducing her amendments. The Government think it essential that pension schemes remain competitive post scale and we expect that schemes with scale, as well as market disruptors, will continue to innovate and drive competition. We actively encourage competition through the provision of the new entrant pathway to allow new innovative schemes to enter the market. The scale measures place a requirement for a main scale default arrangement at the centre of the scheme, to deliver scale and the benefits that that can bring. Amendments 114 and 115 relate to measures on consolidation and addressing fragmentation within schemes that are in the market. There is currently significant fragmentation within the market, with high numbers of default arrangements that do not ultimately serve member outcomes. While I recognise that much of the fragmentation is a product of history in contract-based schemes, we have seen that the number of default arrangements is increasing across the market and in a number of master trusts. We do not want to see the same issues arising over time as exist in GPPs, where members are in too many default arrangements that do not offer value. Let me be clear: the measures in Chapter 4 do not cap or limit the number of default arrangements, nor do they impact on the ability of a new entrant to enter the market. What we want to see is default arrangements being created where this meets and continues...
Before the Minister proceeds, could she tell us whether competition and innovation feature at all in the Bill?
My Lords, there is, of course, an innovation pathway; innovation therefore clearly has to be in that. The innovation pathway is the innovation pathway, so it clearly is in that. I have set out on the record my expectation of what will be considered in the review and the fact that the regulations will have to take account of what the review says. I hope that satisfies the noble Baroness. The needs of members should be paramount. It is right that the Government are acting to protect them and to drive schemes to have the capability and capacity to deliver better outcomes. I hope that the noble Baroness, Lady Noakes, can see that we share the same overall objectives and that the Bill as drafted accommodates the intent of her amendments. I hope she feels able to withdraw the amendment.
My Lords, the Minister, as usual, talks a good story on competition and innovation. Our concern is that the Bill as drafted makes it difficult to see that the virtues of innovation and competition are in fact reflected throughout it. In particular, there is no mention of innovation or competition in the regulations restricting the creation of new non-scale default arrangements in Clause 42. That would be addressed by my Amendment 115. Those who are exercising the extensive powers in the Bill to circumscribe the way in which the markets are allowed to develop need to have competition and innovation absolutely in their focus, but the Bill does not achieve that. The Minister could cite only the innovation pathway, but the Bill is much more than that. That is why I believe we need to make changes to the Bill. As I mentioned, I will seek to press both my amendments, but I will start by begging to move Amendment 105A.
Amendment 106
Moved by
106: Clause 40, page 54, line 17, leave out “(7B),” Member's explanatory statement This amendment, connected to others in the name of Baroness Bowles of Berkhamsted, seeks to remove provision on the asset allocation condition from Chapter 3, while preserving provision related to the scale condition.
Amendment 106 agreed.
Amendment 107
Moved by
107: Clause 40, page 54, line 18, after “28B,” insert “28BA,” Member's explanatory statement This amendment is connected to another amendment in the name of Viscount Younger to insert new section 28BA into the Pensions Act 2008.
Amendment 107 agreed.
Amendments 108 and 109
Moved by
108: Clause 40, page 54, line 18, leave out “28C (other than subsection (10)(f))” Member's explanatory statement This amendment, connected to others in the name of Baroness Bowles of Berkhamsted, seeks to remove provision on the asset allocation condition from Chapter 3, while preserving provision related to the scale condition.
109: Clause 40, page 54, line 19, leave out “28G,” Member's explanatory statement This amendment, connected to others in the name of Baroness Bowles of Berkhamsted, seeks to remove provision on the asset allocation condition from Chapter 3, while preserving provision related to the scale condition.
Amendments 108 and 109 agreed.
Clause 41: Amendments related to section 40
Amendments 110 and 111
Moved by
110: Clause 41, page 55, line 3, leave out “or the asset allocation requirement in section 28C” Member's explanatory statement This amendment, connected to others in the name of Baroness Bowles of Berkhamsted, seeks to remove provision on the asset allocation condition from Chapter 3, while preserving provision related to the scale condition.
111: Clause 41, page 55, line 7, leave out “or the asset allocation requirement in section 28C” Member's explanatory statement This amendment, connected to others in the name of Baroness Bowles of Berkhamsted, seeks to remove provision on the asset allocation condition from Chapter 3, while preserving provision related to the scale condition.
Amendments 110 and 111 agreed.
Clause 42: Regulations restricting creation of new non-scale default arrangements
Amendment 112
Moved by
112: Clause 42, page 56, line 24, leave out “a non-scale default arrangement” and insert “several non-scale regular arrangements” Member's explanatory statement This amendment, and another in the name of Baroness Altmann, seeks to ensure pension schemes are not excluded from the market for going beyond ‘one-size-fits-all’ approaches and can design arrangements for different cohorts of membership. It also seeks to clarify the language used in relation to these arrangements.
My Lords, Amendments 112 and 113, which I shall not press to a vote, are designed to ensure that we try to keep the needs of pension scheme members at the heart of all the policy changes that we make. For me, pensions have always been about people; they are not just about money. In relation to the clause that concerns restricting the creation of new non-scale default arrangements, these amendments seek to permit default arrangements below scale-for example, where a company seeks to identify different types of member and put together a default arrangement that is specifically suited more to that type of member than to the traditional one-size-fits-all policy that pension schemes so often seem to be based on, and that certainly do not suit many of the members who are put into them. I hope that the Minister will help me understand why the Government want to have just one default arrangement-potentially with just one common investment strategy-rather than encouraging more of a pension market that can serve individual groups of members with different needs. That could include those who are in poor health and who might need a different approach, or those who may not know when they are going to retire and therefore a life-styling fund that takes them out of higher return investments would not be appropriate for them. The idea of pension companies asking members about themselves, beyond just looking at their chronological age, seems to be rather alien. However, I hope it could...
My Lords, this amendment speak to a principle that we on these Benches have returned to throughout our consideration of the Bill: the framework we are putting in place must reflect the reality of outcomes, not simply a rigid set of predetermined requirements. This amendment recognises that many schemes quite properly design different default arrangements for different cohorts of members. That is not a weakness; it is a strength. It reflects an understanding that savers are not all the same, and that good outcomes often require a degree of tailoring. Where such schemes are performing well and delivering strong outcomes for their members, they should not be penalised simply because they do not conform to a single uniform model. In that sense, this amendment is important. It does not undermine the objective of improving scale where that is beneficial, but it ensures that we do not lose sight of the ultimate goal, which is-returning the same theme-better outcomes for savers.
My Lords, I thank the noble Baroness, Lady Altmann, for introducing her amendments. I covered quite a bit of this ground in my response to the previous group, which was quite long, so I will not repeat that-I hope that the noble Baroness will not mind. As I set out in the previous group, Chapter 4 of the Bill relates to default arrangements and the fragmentation in schemes that are in the market. To reiterate, the measures in this chapter do not cap or limit the number of default arrangements, nor do they impact on the ability of a new entrant to enter the market. I previously mentioned innovation, which features in the new entrant pathway, but what we want to see is default arrangements being created to meet member needs. That is why we are introducing a range of measures for them to need regulatory approval before they begin to operate. On Amendment 112, I understand that the intent is to allow a scheme to have “several non-scale regular arrangements”. However, it is not clear what is meant by a “regular” arrangement in the description, as it is not defined.
I did not go into detail for reasons of time. However, my intention with the word “regular” was to get away from the standard industry jargon of “default fund”, which has quite negative connotations for an ordinary member. Therefore, having the word “regular”-or “standard”, or whatever we want to call it-would be much better for the pensions industry than the negative term “default”. Most people would ask, “Why would I want to default on my money? I want to do something good with it”.
The noble Baroness should not worry about time-it is only 3.45 pm. We have all the time in the world, so I am very happy to carry on debating this.
A noble Lord
It is 2.45 pm-the Minister has had too many late nights.
Tell me about it. To pick up on the point the noble Baroness made, we have had the discussion about language before, and I am completely with her on how we describe things when we are facing customers and individual savers. However, language that goes into Bills has to be precise because it gets litigated, and therefore things have to be capable of being defined. That is why definitions matter. It is not about a desire to obscure or put things in language that is not easily understood. The key is to be precise in legislation, and in member-facing communications to be as clear as is necessary.
You are allowed to have more than one default arrangement; that is already allowed in the Bill. The clause simply sets out that each new default arrangement will need regulatory approval. Amendment 113 seeks to place a duty on the Secretary of State to ensure that pension schemes will not be inadvertently penalised by regulations in Clause 42. It is not clear how the Secretary of State will be able to fulfil that duty. The purpose of Clause 42 is to enable pension schemes to set up new default arrangements subject to regulatory approval. The intent is simply to ensure that these arrangements are set up to meet member needs. I hope we can agree that an approach that allows for different member needs, but not unbridled fragmentation, is appropriate.
I understand the point the noble Baroness made, and I think we share the overall objectives, but I hope that she can see that the Bill, as defined, accommodates the intent behind her amendment and that she can withdraw it.
I thank the Minister for her response, and I beg leave to withdraw the amendment.
Amendment 112 withdrawn.
Amendment 113 not moved.
Clause 43: Review in relation to non-scale default arrangements
Amendment 114 not moved.
Amendment 115
Moved by
115: After Clause 44, insert the following new Clause- “Innovation and competitionIn making regulations under sections 42 and 44 the appropriate authority must have regard to-(a) the encouragement of innovation in the design and operation of pension schemes, and(b) the benefits of competition among providers of pension schemes.”Member's explanatory statement This amendment would require regulations dealing with non-scale default arrangements to have regard to innovation and competition.
Amendment 115 is a mirror to Amendment 105A which I moved successfully earlier. I move this amendment formally.
Clause 49: Default pension benefit solutions
Amendment 116
Moved by
116: Clause 49, page 69, line 4, leave out “or entitled to” and insert “, or has an actual or prospective right to,” Member's explanatory statement This amendment ensures that default pension benefit solutions must be designed and made available to deferred members (as well as active and pensioner members).
My Lords, in moving Amendment 116 I will speak also to government Amendments 117, 118 and 119. These are all minor and technical amendments. Amendment 116 to Clause 49, concerning guided retirement, makes a technical change needed to ensure that the legislation functions as intended. The amendment provides greater clarity that deferred members-those no longer actively contributing to the scheme but who are not yet drawing their pension benefits-are considered eligible members. This ensures that the framework covers the broad range of individuals for whom it was designed and reduces the risk of misinterpretation. The amendment does not change the policy; it simply provides the clarity needed for effective implementation, consistent with the policy intent. Government Amendments 117, 118 and 119 will help to ensure that well-funded superfunds will not be forced to wind up when they still provide a high level of security to their members. Under the superfund supervisory framework that will be established through the Bill, a breach of the technical provisions threshold may result in the capital buffer being released to the scheme’s trustees, whereas a breach of the protected liabilities threshold may result in the superfund winding up. In drafting this policy, we anticipated the upside-down situation which can arise within a superfund in certain circumstances when the protected liabilities threshold is breached before the technical provisions threshold. We have therefore taken...
My Lords, I have the pleasure of supporting these amendments. I am very pleased that the Government have made the decision to improve flexibility and help the working of these new superfunds. We do not yet know quite how they will go, so I thank the Government and fully support the amendments.
My Lords, I shall speak briefly to this group of amendments. At the outset, I recognise that a number of these amendments are either technical or consequential. It is entirely right that the Bill should be internally consistent and operable in practice. However, Amendment 117 raises a more substantive issue on which I would be grateful for some clarification from the Minister. This amendment alters the way in which the protected liabilities threshold for superfunds is determined, moving to a model in which the threshold is defined as a percentage set out in regulations. I know that we are on the cusp of closing proceedings on the Bill today, but I am afraid that I have a number of questions on this. First, will the Minister set out clearly what problem this amendment seeks to address? What deficiency has been identified in the current approach? Secondly, what assurance can the Minister give that this change will not weaken the level of protection afforded to members? Is there any scenario in which this more flexible, percentage-based approach could permit lower funding levels than would otherwise have been required? Thirdly, how does the Secretary of State intend to determine the appropriate percentage? Will there be a minimum floor or is this entirely to be left to future regulations? Finally, given the importance of this safeguard, can the Minister explain why it is not being set out in the Bill and what level of parliamentary scrutiny will apply to the regulations that...
I am grateful to the noble Baroness, Lady Altmann, for her support. I know that she recognises the problem that this is designed to solve and why the Government have done this. In response to the noble Viscount, Lord Younger, obviously I completely failed, but I thought that my speech explained the problem that this was designed to solve. Let me try again. If I say it again slowly, that might help-that is a comment on my speed, not on his comprehension, if I may say so. The Bill is establishing a permanent supervisory framework for superfunds-there is only an interim arrangement at the moment. There are two different issues. A breach of the technical provisions threshold can result in the scheme’s buffer being released to the trustees, whereas on the other hand, if you breach the protected liabilities threshold then that can result in the superfund being wound up. If those end up being breached in not the traditional order, the superfund could end up being obliged to wind up, when in fact it could meet its liabilities other than because of this issue. That is the problem. I have tried to explain it more simply, and I apologise that I did not do so more clearly at the start. We discussed the problem in Committee, when the noble Baroness, Lady Bowles, tabled an amendment and we had a conversation about it. That is the problem we are trying to solve. I said at the time that it cannot necessarily be in members’ interests to force a superfund to wind up when its technical...
Amendment 116 agreed.
Clause 71: “Financial thresholds”
Amendments 117 to 119
Moved by
117: Clause 71, page 86, line 24, after “exceeds” insert “a specified percentage of” Member’s explanatory statement This amendment would provide for the protected liabilities threshold in Part 3 (superfunds) to be met if the total value of the assets of the relevant scheme and the capital buffer exceeds a percentage of the scheme’s protected liabilities specified in regulations made by the Secretary of State.
118: Clause 71, page 86, line 25, leave out from “liabilities” to end of line 26 Member’s explanatory statement This amendment is consequential on the amendment in the name of Baroness Sherlock to clause 71 at page 86, line 24.
119: Clause 71, page 86, line 33, at end insert- ““specified” means specified in regulations made by the Secretary of State;”Member’s explanatory statement This amendment is consequential on the amendment in the name of Baroness Sherlock to clause 71 at page 86, line 24.
Amendments 117 to 119 agreed.
Consideration on Report adjourned.