207: After Clause 117, insert the following new Clause—
“Review of impact of this Act on retirement incomes(1) The Secretary of State must, within five years of the passing of this Act, carry out a review of the impact of the provisions of this Act on actual and projected retirement incomes.(2) Further reviews must be carried out at intervals of not more than five years thereafter.(3) Each review must consider—(a) the impact of the provisions of this Act on actual and projected retirement incomes, and(b) whether additional measures are required to ensure that pension scheme members receive an adequate income in retirement.(4) The Secretary of State must prepare a report of each review and lay a copy of that report before Parliament.”
I hope noble Lords have had a restful recess. It is a pleasure to open the first debate on the final day in Committee on this Bill, and I look forward to hearing further and final contributions from noble Lords on this stage of the Bill.
Today, we continue to discuss important issues relating to pension schemes which of course ultimately matter greatly to the millions of individuals who are saving for, or who have saved for, their pensions, and who rely hugely if not wholly on these funds until the end of their lives. With that thought in mind, I turn first to Amendment 207, tabled in my name, which calls for a review of the impact of this legislation on retirement incomes.
When one reflects on the debates we have had in recent weeks, it is clear that they have been concerned not with procedure for its own sake but with the underlying architecture of the pensions system. The question before us has been whether the framework we are constructing will in practice enable schemes to deliver outcomes for their members. The provisions in this legislation are intended to change behaviour and outcomes: if they were not, there would be little purpose in legislating. The Government do not bring forward measures of this scale merely to rearrange, streamline or clarify administrative detail; they do so because they believe the system can and must function better.
So the objective, surely, should be clear: pension schemes should deliver stronger, more reliable outcomes for their members over the long term. Costs should be considered, but they must not become a proxy for value. The true measure of success is whether savers receive adequate and sustainable incomes—for example, the tax decisions by the Government of the time, or for inflation. Above all, schemes must operate with a single disciplined focus to act in the long-term interest of those whose savings they are entrusted to manage. If the Bill, on becoming an Act, succeeds in that ambition, it will deserve praise; if it falls short, as some noble Lords have cautioned it might, we must be able to say so clearly and respond accordingly. Amendment 207 would therefore simply ensure that we have the opportunity to assess whether the legislation has improved adequacy of income in retirement, and if not, to consider what further measures may be required.
My Lords, I will intervene briefly in support of my noble friend’s amendment—not on the specifics but because, having read again the 42nd report of the Delegated Powers and Regulatory Reform Committee, which refers directly to this legislation, it has become ever more obvious that this skeleton, which has taken up an enormous amount of time and is in itself highly complex, leaves an enormous number of question marks. It leaves an enormous number of doubts and concerns, most of which the Government are placing at their own disposal through secondary legislation, which is at this point equally uncertain.
Therefore, it seems absolutely essential that, when there are proposals such as those we have just heard from my noble friend—to review the commencement of the legislation, or to have reviews on a five-yearly basis, or indeed in any other ways, of some of the more complex areas—the Government should concede that that is appropriate in a Bill of this kind. I do not think I have ever read in my time here such a clear statement as that made by the Delegated Powers and Regulatory Reform Committee about the nature of legislation. It would be serious enough if it were dealing with a Bill with very few clauses and of little import, but this is of such a substantial nature. The report we have read condemning the nature of the Bill for not having the flesh around those skeletal bones is notable and important. The Government should therefore be much more amenable to the sort of sensible proposals being made in the amendments of my noble friend.
I do not wish to speak further on this, but it seems terribly important that—whether it is dealt with now or at a later stage—there be an understanding that the Bill is entirely dependent upon future secondary legislation. Standing alone is, I am afraid, an unacceptable set of provisions.
There can be no objection in principle to having a review; all public policies should be open to review. The objections are practical, such as whether it would be a waste of time for the people who would have to undertake the review, who might have better things to do. Undertaking reviews can lead to planning blights; measures that need to be carried forward are held back because of some form of review being undertaken that is not central to the measures currently in the Bill.
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The two previous speakers misunderstood the nature of this Bill. The noble Viscount, Lord Younger, referred to the Pensions Commission, but it is important to emphasise that Amendments 207 and 213 fall fully within the remit of the commission, and we should leave this issue to that body.
Amendment 211 is about tax treatment, which for good or ill has been specifically excluded from the work of the Pensions Commission. It is a reasonable question, and an issue on which we welcome a review—and may be having an interesting discussion tomorrow on the tax treatment of pensions. Perhaps we could pursue those issues then.
I shall add a little-known fact—we all learn something. National insurance contributions were originally free of tax; they were tax free when originally introduced, but at that time they were flat rate. The Government decided that it would be a lot easier if they were not treated as tax free and that they would just include it in the personal tax allowance. In fact, hidden within the existing personal tax allowance is the provision for removing tax relief on national insurance contributions. It does not quite work like that now, but it is related.
I jumped in ahead of the noble Lord, Lord Palmer of Childs Hill—I shall reply to his speech before he gives it.
This is about impartial pensions advice. Had I heard the noble Lord’s speech, I would have said that I did not accept his arguments. What I want is a pensions system that works without people needing advice. Proper pensions advice is extremely expensive, and on the idea that everyone will get at least twice during their working life full and adequate pensions advice—no, we do not want to encourage that. I would encourage a pensions system that works properly.
Then we have the Police Pension Scheme. I have talked to those campaigning on the issue on a number of occasions and I totally agree that it is entirely unfair that the spouses of some members of the scheme, when those members retire and die, will receive a pension—until they are accused of cohabiting or decide to get married. That happens only in the public sector; virtually no private sector schemes do that sort of thing, and the only ones that do are those that have carried over those rules from the public sector. To be honest, that is nasty. People naturally resent losing the money, and then become open to tittle-tattle and intrusive investigations; that is just wrong. Clearly, there is a cost involved, because there is a carryover to other public service schemes—but it is just wrong; it is treating people badly for no good reason other than history.
I hope that the Government will be able to make a positive response on Amendment 215. I do not have a lot of hope, but I am eternally hopeful. I apologise for jumping in ahead of the noble Lord, Lord Palmer.
My Lords, I say to the noble Lord, Lord Davies, that no apology is needed.
This is a wide-ranging set of review and process amendments. The noble Viscount, Lord Younger, explained what I think he described as his “modest” amendments—indeed, they are. The noble Lord, Lord Kirkhope, said that this was all set up for secondary legislation; we ought to take that point into account.
These amendments are linked by a common theme: whether the Government are willing to build a stronger evidence base for future pensions policy and to improve the basic safeguards for savers. Several of these amendments ask Ministers to review pension adequacy, contribution rules, labour market impacts and public understanding, while others seek an independent look at specific injustices or practical improvements to data accuracy.
These amendments are probing, but they raise real policy gaps. Taken together, they test whether Ministers are prepared to move beyond structural reform and address the practical foundations of trust in pensions, adequate incomes, fair treatment, accessible information and correct records. I hope that, in replying, the Minister will explain which of these issues the Government accept in principle and whether they believe that the existing powers, regulators and reviews are already sufficient. I expect that to happen. The Bill changes structures and powers, but savers also need fairness, clarity and accurate data. When Ministers resist new duties, they should set out a clear alternative route and timetable. I hope that the Minister will do so.
The noble Lord, Lord Davies of Brixton, made important points. We will disagree, but I shall pursue the amendments in my name. Amendment 214 in my name would establish a universal entitlement to free and impartial pension advice at key stages of life. It would ensure that everyone, not just the financially literate or well advised, can make informed decisions about retirement. Such advice would, I hope, be offered around the age of 40—a critical moment for mid-life planning and pension consolidation—and again within six years of expected retirement to support decisions on drawdown, annuities and retirement income options, which are a mystery to many people at that or any stage of life.
I am grateful to all noble Lords who introduced and spoke to these varied amendments. The range of subjects covered here shows the interest across the whole pensions landscape, but at heart is the objective that we all share of putting members first.
There was a theme around adequacy in Amendments 207 and 213 from the noble Viscount, Lord Younger of Leckie. Amendment 207 seeks to introduce a statutory requirement for the Secretary of State to conduct a review of the Bill’s impact on retirement incomes five years after it is passed, and to have subsequent reviews at intervals not exceeding five years from the first assessment. Amendment 213 wants a statutory requirement for the Secretary of State to conduct a review of the relationship between employment rates, earnings patterns and pension adequacy. Although both amendments raise key issues around pension adequacy and proper monitoring, the Government’s view is that the proposals risk the duplication of work already being undertaken. I shall explain why.
There are many different strands to this Bill, which will be implemented in phases over the next several years. For example, the first small-pots consolidation will not take place before 2030, so obviously any review in the next five years will not have allowed many of the reforms any time to take effect. It is for that reason that a comprehensive impact assessment was produced, setting out not only the potential impacts but also plans to evaluate the Bill in further detail, including developing new research projects to address evidence gaps.
The Government already carry out and publish analysis of projected future retirement incomes, which provides estimates of the number and proportion of working-age individuals aged 22 to state pension age who are undersaving for their retirement. The modelling that underpins that analysis uses a number of economic factors, including employment levels based on the OBR long-term forecasts, which are regularly reviewed and updated.
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I hope noble Lords will agree that this is a measured and sensible provision. It simply asks Ministers and departments to assess objectively what is working, to identify where improvement may be required, and to report their conclusions transparently to Parliament. In a policy area as long term, complex and consequential as pensions, that degree of accountability is essential.
I now turn to Amendment 211, which is more technical but no less important. It would require Ministers to undertake a full and transparent review of why employee and employer pension contributions are treated differently for the purposes of income tax and national insurance. If two forms of pension contributions are treated differently by the tax system, the Government should be able to explain why, clearly, publicly and with evidence. Tax design should be intentional, not simply the accumulated product of historical accident or, indeed, incremental drift.
The truth is that drift is not unique to any one Administration; it is often perceived as a feature or function of government itself. Complex systems evolve over decades; measures are introduced for sound reasons at the time, adjusted in response to fiscal pressure, amended again in the light of political compromise, and gradually layered one upon the other. In essence, “It seemed the right approach at the time” is a mantra, or even a cliché, which Governments in general find difficult to scrutinise as time marches on.
Reflection in government is not easy. Departments are occupied with immediate pressures, and many probably agree with me that those pressures have never been as great as they are at present. Chancellors face short-term fiscal constraints and Ministers must respond to events. In such circumstances, stepping back to ask first-principles questions can be difficult, yet it is precisely that discipline that Parliament should require.
In truth, we are all susceptible to accepting inherited structures without always interrogating whether the original rationale still holds. That is not a criticism; it is a recognition of institutional reality. But where differential tax treatment affects incentives, savings behaviour and long-term retirement outcomes, we have a responsibility to ask why the distinction exists and whether it remains justified. Amendment 211 offers a challenge to this Government: a transparent review would simply ensure that the current approach rests on deliberate policy choice.
At present, employer contributions receive more favourable treatment for national insurance purposes than employee contributions. That differential treatment shapes behaviour. It affects how remuneration is structured, how salary sacrifice operates and ultimately how pensions are accumulated. Pension saving is not a loophole; it is a public good. It reduces future dependency on the state, supports long-term investment and reflects the principle that income saved for retirement should not be taxed more heavily than income spent today. A structured review would require Ministers to demonstrate the behavioural impacts of the current system, its effect on savings rates and its interaction with automatic enrolment. It would ensure that we are not driven by short-term revenue considerations at the expense of long-term saving and fiscal sustainability.
This issue is especially relevant in light of the National Insurance Contributions (Employer Pensions Contributions) Bill, to which my noble friend Lady Neville-Rolfe, who is not in her place, and my noble friend Lord Altrincham have been responding on behalf of His Majesty’s Opposition. Many of the arguments advanced in that debate bear directly on the substance of this amendment. Recent decisions to increase the tax burden associated with pension saving, including the reduction in the availability and attractiveness of salary sacrifice arrangements, will have consequences across this space. These measures do not operate in isolation: they alter incentives, shape behaviour and affect the very architecture of workplace saving.
It is immediately apparent to pension providers, employers and practitioners that such changes do not, in practice, fall solely on the highest earners. They bear down on those in the middle of the income distribution and, in some cases, below it. Those impacted include young professionals in high-cost cities and mid-career workers seeking to close gaps in their retirement provision, typically earning between £30,000 and £60,000 a year. Given that the average salary in the United Kingdom is just over £37,000, it is difficult to describe individuals within that range as high earners. They are lower-income and middle-income earners, doing precisely what successive Governments have encouraged them to do: to save consistently and prudently for their retirement.
If we reduce the incentives for employer pension contributions through national insurance changes, we must, at the very least, understand the wider implications for pension accumulation, automatic enrolment participation and long-term adequacy of retirement incomes. We should not allow pension policy to become a vehicle for short-term fiscal expediency, nor should we undermine confidence in long-term saving through uncertainty or opacity. Stability and clarity are essential if individuals are to commit a meaningful share of their income to retirement provision over decades.
So Amendment 211 does not seek to dictate an outcome; it seeks an explanation. It asks the Government to set out clearly the rationale for differential treatment within the pensions framework and to consider whether that treatment remains justified in light of our shared objectives: retirement adequacy, fairness between different earners, and sustainable economic growth.
A natural extension of that argument is my Amendment 213, which calls for a review of employment rates and pension adequacy. With the Pensions Commission, under the chairmanship of the noble Baroness, Lady Drake, reporting in 2027, we recognise that the Government have chosen then to opine and report on the structure of the pensions market before turning to questions of pensions adequacy as a stage two exercise. That is their sequencing decision. However, adequacy cannot remain a secondary consideration indefinitely. If the commission is to revisit the long-term sustainability of the system, it must also grapple with who the system is working for and who it is not. During previous discussions in Committee, the Minister pledged to write about the timeliness of stage two and adequacy. How is she getting on with that reply, and where are we on the timeline on adequacy?
Amendment 211 would specify that the review must consider the pension adequacy of workers who are in part-time or insecure work, the pension adequacy of those who take career breaks and parental leave, and the impact of regional labour market disparities on pension outcomes. If pension policy continues to assume linear, full-time, uninterrupted employment, it will systematically underserve large sections of the population.
In conclusion, adequacy matters. I will not rehearse the statistics relating to those who are not saving enough, but the figures are stark. I have spoken at length, as have others in this Committee, about the risks of drifting into a system that is technically sound in structure but insufficient in outcome. A pension system that does not deliver adequate retirement incomes will, in time, recreate the very pressures on the state that automatic enrolment was designed to reduce.
We believe that these amendments are modest. They ask for transparency, analysis and review, not prescription. They aim to ensure that fairness and adequacy sit alongside structural reform. For these reasons, I commend these amendments to the Committee and I beg to move.
The advice would include essentials such as pension types—DB or DC schemes—investment strategies, charges and fees, consolidating multiple pension pots and retirement income choices, and would be practical, comprehensive and relevant. The advice would have to be qualified, independent and impartial. Trustees, managers and providers would have a role in facilitating access. Data sharing would be permitted, but with strong data protection safeguards.
This amendment in my name would also offer flexibility, in that responsibility could be placed with established bodies such as the Pensions Regulator, the Financial Conduct Authority and the Money and Pensions Service. It would be funded from prescribed sources to ensure sustainability. The regulations will be subject to the affirmative procedure, ensuring proper parliamentary scrutiny. Amendment 214 is designed to ensure that people have confidence in and clarity on their pensions, which, I assure noble Lords, many people do not have; to avoid poor decisions that undermine pension security, which many people make; and to make sure that everyone, not just those who can pay for private advice, gets the help they need.
The purpose of my Amendment 215 is to require the Secretary of State to commission an independent review into provisions in police pension schemes that result in the forfeiture, reduction or suspension of survivor pensions. It focuses on cases where survivor pensions are affected by remarriage—as mentioned by the noble Lord, Lord Davies—civil partnership or cohabitation.
Why is this review needed? These provisions can have significant financial, social and emotional impacts on survivors and their families. This would ensure fairness and consistency with other public sector pension schemes—the Armed Forces, the NHS and the Civil Service—and would address potential inequities or outdated rules that disproportionately affect survivors. This review would ensure an independent—that is the point—and transparent process, as well as stakeholder consultation, reporting and accountability. The review panel must publish its findings and recommendations within 12 months. The report must be laid before both Houses of Parliament, ensuring transparency and parliamentary oversight.
This amendment is designed to act to assess the fairness and impact of current survivor pension rules in police schemes and to identify practical reforms that protect survivors’ rights while maintaining scheme integrity, to ensure that the system is consistent, equitable and transparent. I look forward to hearing whether the Minister addresses my points about these amendments.
Separately, the Government have revived the Pensions Commission. I say to the noble Viscount, Lord Younger, that adequacy is absolutely not a secondary issue. As I have explained repeatedly in Committee, we are doing these things in the order that is appropriate to the matters. The Bill makes sure that steps are taken so that the market works well to make sure that increased savings will get appropriate returns for the savers.
The Pensions Commission’s legacy under the last Labour Government was of course to create a system of workplace pension saving via automatic enrolment, which has transformed workplace pension saving for millions of workers. There was cross-party support for this. But the Government recognise that millions are still not saving enough for their retirement, which is exactly why we revived the Pensions Commission to finish the job we started 20 years ago.
I will respond to the noble Viscount, Lord Younger. As indicated previously in Committee, the commission will produce an interim report this spring, setting out the evidence base and strategic direction for its work on assessing the UK’s pension system. It will set a direction based on the purpose that the Government have given it to identify remedies to address pension adequacy, fairness and risk before preparing its final recommendations in early 2027 for the Government to consider.