Pension Schemes Bill

“likely not to be in the best interests of members”.

That reflects language regularly used when considering trustees’ duties. In addition, we have more tightly specified the regulators’ role, confining it to ensuring that the trustee or provider’s own assessment of what is in the best interests of members is “reasonable”, rather than replacing that assessment with their own.

Thirdly, our amendments address worries about the differential treatment of particular investment vehicles by allowing for consideration of direct or indirect holdings in the six asset classes named in the Mansion House accord.

I remind the House that the Bill has its roots in much work that was under way for some time in Government, but also in the commitment in the Labour party manifesto to ensure that workplace pension schemes take advantage of scale and invest in a wider range of productive assets. That is why one of the first things that the Government did on taking office was to launch a comprehensive review of pensions investment. That review found clear evidence that the defined-contribution pensions market is operating with an excessively narrow focus on costs, to the detriment of saver outcomes. That is where the reserve power comes from. It exists because the review found—and the industry itself has told us this, publicly and privately—that competitive pressure focused on cost minimisation is the single biggest barrier to diversifying in savers’ long-term interests.

However, things can of course change over time, and a range of other factors may come into play. We have discussed them with, in particular, the hon. Member for Wyre Forest (Mark Garnier). The changes that we propose today address directly that worry and others. They require regulators to assess whether these competitive pressures remain a material barrier to more diverse private asset investment before any use of the power, and they put trustees’ or providers’ own assessments of savers’ best interests centre stage.

On that basis, I commend the Government’s position to the House.

Secondly, on sunset and single-use restrictions, the Government have brought forward the expiry date of the reserve power to 2032, if unused. They will repeal the whole regime by 2035 unless it is renewed by fresh primary legislation, and have limited the core mandation power so that it can be exercised only once—another retreat. Thirdly, the scope has been narrowed. Mandation can now apply only to the main default auto-enrolment fund, not the entire pension scheme or every pot—again, another retreat.

Today we have had further concessions. The Government now accept that before this power can be exercised, regulators must conduct an independent assessment of whether a genuine collective action problem exists—whereby no one wants to be the first mover—and whether that problem is inhibiting investment in private markets. We have been consistent in our view that mandation is not the right solution, but we accept that requiring independent assessment before the power can be exercised is a safeguard against ministerial overreach, and I appreciate the Pensions Minister’s assurances from the Dispatch Box on the weight of evidence required. The Government have also accepted that the reserve power cannot be used before 2028—again, another retreat.

The Government have further strengthened the savers’ interest test following yesterday’s amendment. Schemes will no longer have to prove that compliance would likely cause “material financial detriment”. Instead, they need only demonstrate that compliance is likely not to be in the best interests of members, thereby aligning the test with trustees’ existing fiduciary duties. That matters, because fiduciary duty is sacrosanct and must be protected. Nothing is more important in a modern pension system than the duty to act solely in the best interests of savers. That duty is the foundation on which trust in our pension system rests. This amendment means that in a conflict between mandation and fiduciary duty, fiduciary duty wins—again, another important retreat. Finally, the Government have agreed to remove discrimination between investment vehicles by clarifying that both direct and indirect holdings in the relevant asset classes count towards compliance—the final retreat.

Every one of those changes tells the same story: the Government introduced a power that was too broad, too vague and too dangerous. Step by step, and under pressure, they have been forced to narrow it, constrain it and hedge it with safeguards. Why? Because the original power was indefensible, and because the Government knew that the concerns were real. The work that we have done has obliterated the Government’s original proposal. As it stands now, the mandation power looks nothing like how it was first imagined. What began as a sweeping ministerial power grab has been stripped back, pared down and boxed in on all sides. Only now, after our intervention, has it become at least palatable. It is a vestige of its former overmighty self—a shrivelled husk.

Let me be clear: we do not believe that the Government should direct private capital, or that Ministers should interfere in investment decisions that are properly left to trustees and markets. Here we have Labour doing what it always does: thinking that the Government are the answer, with the state going where it has no place to go. When the Conservatives return to government, we will remove mandation from the statute book entirely, because at the heart of this policy lies a dangerous assumption that Ministers in Whitehall know better than trustees, fund managers and markets on how to invest the public’s pension savings. I have yet to meet anyone who wants a politician managing their pension, and pensions belong to the people who earn them, not Government Ministers. It is as simple as that.