Pension Schemes Bill

Committee (7th Day)

Amendment 184

184: After Clause 96, insert the following new Clause— “Report on the impact of pension market consolidation(1) The Secretary of State must, within 12 months of the day on which this Act is passed, publish a report on the impact of consolidation in the occupational pensions market.(2) The report must include an assessment of—(a) the level of market concentration among pension scheme providers, including trends in the number and size of schemes;(b) the effects of consolidation on competition, innovation, and consumer choice in the pensions market;(c) the potential barriers to entry and growth for small and medium-sized pension providers;(d) the adequacy of existing regulatory and competition safeguards in preventing anti-competitive behaviour regarding—(i) exclusivity arrangements,(ii) exit charges, and(iii) pricing structures;(e) the role of The Pensions Regulator and the Competition and Markets Authority in monitoring and responding to market concentration;(f) the merits of policy or regulatory measures to support new market entrants.(3) The Secretary of State must lay a copy of the report before both Houses of Parliament.”Member’s explanatory statement This new clause would require the Government to report on the impact of market consolidation on competition and new market entrants.

My Lords, this amendment has the distinction of being in a grouping all of its own, which obviously shows how important it is. The proposed new clause in it would require the Secretary of State to publish a report within 12 months on

“the impact of consolidation in the occupational pensions market”.

It would ensure, I hope, that Parliament and the public have transparency on how consolidation is reshaping the sector. We know that consolidation is accelerating in the pensions market and, although scale can deliver benefits—I hope—it can also raise risks: reduced competition, fewer choices for savers and further barriers for new entrants. A clear evidence base is an essential part of the solution to strike the right balance.

The report referenced in this amendment calls for information on a number of things. The first is market concentration—for instance, trends in the number and size of schemes and the level of provider dominance. The second is effects on competition and innovation: whether consolidation is driving efficiency or stifling creativity and diversity. The third is consumer choice: how member options are being affected. The fourth is barriers to entry: challenges faced by small and medium-sized providers in entering or growing in the market. The last is an assessment of whether current competition and regulatory safeguards are sufficient.

The report would also have a particular focus on exclusivity arrangements, exit charges and pricing structures that may distort the market. Furthermore, the Pensions Regulator and the Competition and Markets Authority would have a role in overseeing these risks. The review would also examine potential policies or regulations to support new entrants and maintain a healthy and competitive pensions market.

To summarise, we know that consolidation must serve savers’ interests, not just the interests of the largest providers. This proposed new clause would ensure that Parliament is properly informed—it should be informed on all things, whether on this or on the noble Lord, Lord Mandelson—that regulators are held to account and that future policy is based on evidence. From a Liberal Democrat perspective, well-functioning markets matter. Competition, diversity of approach and the ability for new entrants to challenge incumbents are essential if savers are to benefit over the long term. Ministers need to explain why a formal review of consolidation is resisted, given the scale of structural change this will accelerate. We are asking just for a review, and we hope the Government will not think this too much to ask for before we enter this new realm. I beg to move.

My Lords, it is a pleasure to close this debate and respond to the remarks of the noble Lord, Lord Palmer, on his Amendment 184. I am grateful to him for raising this issue, because it goes to the heart of how we ensure that pension reform delivers better outcomes for savers rather than simply neater market structures on paper. I think there is reasonably wide backing across the pensions industry for the Government’s broad objective of greater consolidation and efficiency within the defined contribution market. Many stakeholders accept, and indeed support, the proposition that increased scale, when combined with robust governance, strong investment capability and appropriate oversight, has the potential to deliver stronger long-term outcomes for members. Few would argue for fragmentation for its own sake.

However, support for consolidation is not the same as support for consolidation at any cost, or consolidation pursued without sufficient regard to its secondary effects. Well-founded concerns remain that the current design of the scale test risks it being too blunt an instrument. In particular, it does not distinguish adequately between schemes that are genuinely underperforming and those smaller or mid-sized providers that, despite operating below the proposed thresholds, none the less deliver consistently high-quality, well-governed and, in some cases, market-leading outcomes for savers. Indeed, the Government’s own analysis underlines this risk. The chart contained in paragraph 70 of the Government’s 2024 report shows no clear or consistent correlation between assets under management and gross five-year performance across large parts of the master trust and group personal pension market.

The principal scale-related concern identified appears to relate not to well-run schemes operating below the threshold but to the very smallest arrangements, in particular certain single-employer schemes where governance capacity and resilience can be more limited. That matters because consolidation in a pensions market is not a neutral process. This is not a typical consumer market. Savers are largely captive, choice is constrained, switching is rare and inertia is high. In such an environment, reductions in the number of providers can weaken competitive pressure long before anything resembling a monopoly appears. The risk is not always higher charges tomorrow but slower innovation, less responsiveness and poorer outcomes over time.

My Lords, I thank the noble Lord, Lord Palmer, for introducing his amendment, which would require the Government to conduct a report on the impact of consolidation in the occupational pensions sector within 12 months of the Act being passed. I am grateful to the noble Baroness, Lady Stedman-Scott, for her remarks and her acknowledgement of the benefits of consolidation and the widespread support for it.

The fact is that consolidation is already happening across the pension landscape. The number of DC pension providers has reduced from roughly 3,700 in 2012 to about 950 schemes today. On the DB side, the number of schemes is similarly down from about 6,500 in 2012 to 4,800 in 2026, with a record number of transactions currently estimated in the buyout market. Our aim is to accelerate this trend of consolidation through the DC scale measures and DP superfunds. As I have said before, scale brings numerous benefits directed at improving member outcomes, including better governance, greater efficiency, in-house expertise and access to investment in productive markets.

I am not going to respond in detail to the comments from the noble Baroness, Lady Stedman-Scott, on innovation and other things, because we have given them a decent canter in previous meetings in Committee, but it is absolutely essential that pension schemes remain competitive post-scale. We expect that schemes with scale will innovate and drive competition, especially, for example, in consolidating single-employer trusts. The market will evolve, as will the needs of members, and we expect that the schemes and the industry will be able to align with this.

It is absolutely right that the Bill will lead to major change in the occupational pensions market. Although I do not agree with this particular proposal, I absolutely agree with the noble Lord, Lord Palmer, that we must understand and monitor the impact of these reforms, because the impacts of consolidation really matter. That is why a comprehensive impact assessment was produced, analysing the potential impacts of the Bill, with plans to evaluate the impact in further detail. An updated version of the impact assessment was published as the Bill entered this House; crucially, it included further details of our ongoing monitoring and evaluation plans, including critical success factors and collaboration across departments and regulators.

My Lords, I thank the Minister for that; it gives me some reassurance, and I am always happy to say when that happens. The aim of the amendment is to improve the Bill, not to undermine it. Some of the things that the Minister has suggested may happen are already happening. When figures are quoted quickly—such as 950 schemes of one sort and 4,826 of the other—the numbers do not seem so large, but they are pretty substantial in terms of those impacted.

We are worried about the impact of consolidation. I rather get the impression that the Minister is aware that there could be problems that need to be reviewed as we go along, and we will need time to assess what is happening. I take cognisance of the Minister’s reassurances: they take us along the same path as I am suggesting. We will have time, obviously, to review what is happening as time progresses. In the light of that, I beg to withdraw my amendment.

Amendment 184 withdrawn.

Clauses 97 to 99 agreed.

Clause 100: Sections 100 to 103: interpretation and scope

Amendment 185 had been withdrawn from the Marshalled List.

Clause 100 agreed.

Clauses 101 to 107 agreed.

Clause 108: Indexation of periodic compensation for pre-1997 service: Great Britain

Amendment 186