Pension Schemes Bill

Commons Amendments

Motion A

Moved by

That this House do not insist on its Amendments 15 to 24, 27, 30 to 34, 36, 38 to 42, 83 and 88, and do agree with the Commons in their Amendments 88C, 88E to 88P, 88R, 88S, 88W and 88Y to 88Z8 to the words restored to the Bill by the Commons disagreement to Lords Amendments 15 to 24, 27, 30 to 34, 36, 38 to 42, 83 and 88.

88Y: Clause 40, page 46, leave out lines 3 to 16 and insert— “(4) In this section “qualifying asset” means an asset of a prescribed description that is held in a main default fund of a relevant Master Trust or group personal pension scheme. (5) A description of asset may be prescribed under subsection (4) only if it represents a direct or indirect holding in any of the following asset classes— (a) private equity; (b) venture capital; (c) private credit; (d) interests in land; (e) infrastructure; (f) unlisted equity securities not falling within paragraphs (a) to (e). In this subsection “unlisted equity securities” means equity securities not listed on a recognised stock exchange within the meaning of the Income Tax Acts (see section 1005 of the Income Tax Act 2007) (including equity securities admitted to trading that are not listed on such an exchange).”

88Z: Clause 40, page 46, line 16, at end insert— “(5A) Regulations under subsection (4) must secure that a description of asset is prescribed under that subsection in respect of each asset class mentioned in subsection (5)(a) to (f).”

88Z1: Clause 40, page 48, line 1, leave out “the first set of”

88Z2: Clause 40, page 48, line 2, leave out “regarding” and insert “setting out”

88Z3: Clause 40, page 48, line 2, at end insert— “(za) a joint assessment by the Financial Conduct Authority and the Pensions Regulator of the extent to which there is evidence of competitive conditions restricting relevant Master Trusts and group personal pension schemes from investing in qualifying assets, including in circumstances where such investments may be in the best interests of members of such schemes; (zb) the Secretary of State’s assessment of the extent to which relevant Master Trusts and group personal pension schemes have made progress towards achieving— (i) 10% (by value) of scheme assets held in main default funds to be qualifying assets, and (ii) 5% (by value) of scheme assets so held to be of a UK-specific description (within the meaning of subsection (6A)(b)); (zc) the Secretary of State’s assessment of any barriers to relevant Master Trusts or group personal pension schemes investing in qualifying assets, including in particular where such assets are located in the United Kingdom; (zd) the steps taken by the Secretary of State or the Authority to address any such barriers;”

88Z4: Clause 40, page 48, line 8, at end insert— “(12A) Before making regulations under subsection (1), the Secretary of State must have regard to the joint assessment of the Financial Conduct Authority and the Pensions Regulator mentioned in subsection (12)(za).”

88Z5: Clause 40, page 48, line 13, at end insert— “(14A) The Secretary of State may not make regulations under subsection (1) before 1 January 2028.”

88Z6: Clause 40, page 50, line 38, at end insert— “(za) may make provision about the form and content of an application, including about the evidence to be provided as part of an application; (zb) must make provision requiring an application to include a statement— (i) that the applicant concludes that meeting the asset allocation requirement is likely not to be in the best interests of members of the scheme, and (ii) setting out the basis on which the applicant reached the conclusion.”

88Z7: Clause 40, page 50, line 39, leave out from beginning to end of line 2 on page 51 and insert— “(a) must make provision requiring the Authority to determine that the applicant is to be treated as mentioned in subsection (1) in cases where— (i) the application complies with the requirements of regulations made under subsection (1), and (ii) the Authority is of the view that it is reasonable for the applicant to have reached the conclusion that meeting the asset allocation requirement is likely not to be in the best interests of members of the scheme;”

88Z8: Clause 40, page 51, leave out lines 14 to 16

Noble Lords will be aware that we have one outstanding issue on this Bill still in play. Unsurprisingly, it is the reserve power on asset allocation. As this is the fourth time the House has been asked to consider the question, I will spare noble Lords a detailed exposition of the merits of this policy. Let me simply say that the Government’s underlying position has not changed, reflecting our policy intent to ensure that savers’ best interests are secured by bigger and better pension schemes investing in a wide range of assets.

Today, the Government return to their previous amendments, all of which the elected House endorsed. These spell out the intended purpose of the reserve power to underpin the industry’s commitments in the Mansion House Accord and rule out other uses, such as a focus on any specific asset or asset class. Today, we are also bringing forward a final set of changes that aim to respond to points made in this House and the other place, while retaining the policy intent I have set out. These have three elements.

First, there is a new requirement on regulators, in this case the TPR and the FCA, to make an assessment of the extent to which there is evidence for the collective action problem that we have discussed in debates on this Bill. There will be a requirement for this assessment to be incorporated into the production of the ex-ante report that the Bill requires to be published before any use of the reserve power. Our amendments today would also place a duty on the Government to have regard to this regulatory assessment before any use of the power. It was always the Government’s intent to evaluate progress against the Mansion House Accord commitments in terms of the broad direction of travel over a substantial period of time rather than shorter-term movements in private asset exposure. To reinforce this, we also propose to add to the Bill that the power cannot be exercised any earlier than 2028.

My Lords, I rise for the last time in your Lordships’ House to congratulate the Minister, to thank her for all the hard work that she has done and to say how much I have appreciated my interaction with her. We have arrived at a perfect compromise in that none of us is entirely satisfied—which has always been the definition of a great compromise. We are in a place where the major concerns that many of us had on the mandate part of this Bill have been, if not removed, modified to the point at which they are liveable with. As the Minister said, it is this House at its best.

When I came into this House in 1995, if your Lordships had said to me, “The last time that you speak will be on the fourth ping-pong of a Pension Schemes Bill”, I would have said, “On your bike—not a chance”. However, I have enjoyed the work of being part of this Bill, and I think that both the Government and the Opposition have done their job well. I hope that when this goes on to the statute book, it will deliver for pensioners.

My Lords, it is a pleasure to follow the noble Viscount, Lord Thurso. I pay tribute to him. He will be much missed by this House. His work on this Bill and in many other areas has been most welcome and helpful and his demeanour and the manner in which he has co-operated with us and with Ministers has been appreciated by everybody. I declare my interests as far as pensions are concerned. I am an adviser to a master trust and a non-executive director of a pensions administration company.

I will not delay the House too long, but I want to welcome the changes that have been made. I thank the Minister for her patience, her engagement and for listening and working with this House. We have now achieved much safer and better outcomes for members of pension schemes. These will allow trustees and managers to look after the best interests of members so that they do not feel forced to invest in ways that they might not otherwise have chosen to or which are against their best judgment.

There will not be an exclusion of listed investment companies. Again, I thank the Minister and the Government for listening to the serious concerns that were expressed by this House. I also welcome the changes that we have made along the way to the Bill. It is a much better Bill. I thank all colleagues across the House who have co-operated so well.

I must pay tribute to the noble Baroness, Lady Bowles, for all the work that she has put in, and the Front Bench on this side as well, who have worked so hard to make this Bill a better Bill. I wish this Bill well. Hopefully, a lot of pension scheme members will enjoy better retirements in the future—I certainly hope so—as a result of what we are doing now.

My Lords, I am pleased to have reached this stage, where we are now all back on the same side. We have had some exchanges when we have said, once upon a time, that we were all pointing in the same direction, and then we had a little bit of slippage away from that, but now we are back together. I am still no fan of mandation, but we have now got it suitably under control, if I can put it that way. There are reasonable guardrails to make sure that it does not go wrong, that we, I hope, never use it and that we get the additional investments that we all agree in principle are needed.

I thank all noble Lords who have worked on the Bill, because the work, the meetings and so forth have been harmonious. A lot of late-night working, and some early this morning, has resulted in the solutions that we now have. Like others, I thank everyone and hope we can see the rewards that come from the passage of this Bill.

My Lords, the amendments brought forward by the Government today, in lieu of those proposed by the noble Baroness, Lady Bowles, go some way towards addressing our more fundamental concerns about the mandation power. In particular, the shift in the test—from requiring schemes to show that compliance

“would be likely to cause material financial detriment”

to demonstrating that it is

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

represents a significant and welcome change from the Government’s original position. By placing members’ best interests at the heart of the policy, this reform helps to mitigate the risk that mandation could cut across trustees’ fiduciary duties. It was never acceptable that schemes should have to show a risk of material detriment before securing an exemption, as the Government had proposed in earlier stages. The Government’s recognition of that point is therefore very welcome, albeit somewhat overdue.

I welcome the Government’s commitment to require the regulators to undertake an independent assessment of the purported collective action problem and the extent to which it is inhibiting investment in UK assets. The Government have consistently argued that mandation is necessary to address a collective action problem. They will now need to substantiate that claim with robust independent evidence, with the Secretary of State having regard to this assessment before they make regulations. That too is a welcome step forward, as is the Government’s commitment to remove discrimination in the clause between investment vehicles. Their decision to bring forward the sunset period from 2035 to 2032 is also sensible.

These changes are a direct result of sustained and determined pressure from across this House to address the question of mandation in the Bill. Noble Lords on all sides recognised early on the fundamental flaws in the Government’s original approach—concerns that were not only shared here but held strongly across industry. I pay particular tribute to the noble Baroness, Lady Bowles, who has led that effort with clarity and persistence. She has kept the House focused on what is, without question, the central issue in our consideration of this Bill. I am glad that this has borne fruit in what is a substantial move from the Government’s original position, which was untenable.