The House of Lords has once again rejected the government’s attempt to finalise the Pension Schemes Bill, with the two houses of parliament locked in disagreement over the “mandation” reserve power.
Late last night, peers voted against amendments tabled by the House of Commons earlier in the evening that proposed further limitations on the mandation power.
Liberal Democrat peer Baroness Sharon Bowles led the opposition, calling the threat of deauthorisation contained within the mandation power “draconian and disproportionate”.
“Trustees are left in a double bind: comply and risk personal liability, or refuse and risk de-authorisation,” the baroness said, adding that a proposed change in language was “trivial” and the clause “remains defective”.
Baroness Ros Altmann, supporting Baroness Bowles, added that while the current wording of the mandation clause aligned with the Mansion House Accord as it applies to the 17 providers that signed it, there was no mention of the obligations the government had signed up to under the accord – namely, an expectation that it would help secure a supply of investable assets.
Government tables further concessions
Earlier in the evening, MPs voted in favour of the government’s third attempt to placate the Lords’ concerns, using the government’s strong majority to push the amendments through despite vocal opposition from the Conservative and Liberal Democrat parties.
“Trustees should not need state approval to act in the best interests of their members. These amendments just tinker at the margins; they do not fix the flaw in the policy.”
Helen Whately, shadow work and pensions minister
The latest amendments centred on the “savers’ interest test”, which provides an exemption from the mandation clause. As currently worded in the Pension Schemes Bill, this gives pension schemes a way out of having asset allocations forced on them if trustees can show that such action would cause material financial detriment to members.
Opponents to the clause have argued that this sets an unnecessarily high bar, and so the government proposed to soften the wording to mean that trustees only needed to show that material financial detriment was “probable” rather than “certain”.
Andrew Western, parliamentary under-secretary within the Department for Work and Pensions, standing in for pensions minister Torsten Bell, said that the government would not back down on the mandation issue, but that further concessions were designed to allay fears around the impact on fiduciary duty.
Western also explained that – on top of previous changes made last week – further amendments specify that regulators must grant exemptions when schemes meet the exemption threshold. If an application for an exemption is rejected, the regulator must specify why, a measure that Western said would ensure schemes have a right of appeal to the Upper Tribunal if necessary.
He also set out that the new text would put the assessment of trustees and pension managers “centre stage” by requiring regulators to “have due regard to” a scheme’s assessment of material financial detriment.
“Schemes must set out their reasoning, and the regulator must engage with it properly and thoroughly,” Western stated. “‘Due regard’ is established statutory language with legal weight that means the regulator cannot simply pay little or no attention to the scheme’s analysis.”
Changes fail to allay opposition concerns
However, Conservative MP Helen Whately, shadow work and pensions minister, said this did not go far enough and once again led calls for the clause to be removed entirely. This was echoed by Liberal Democrat spokesperson Steve Darling and by several members of the House of Lords.
Whately told MPs: “The need for these amendments tells its own story: the government accepts that mandation risks conflicting with the duties that trustees and pension providers owe to savers. If no such conflict existed, there would be no need at all for an exemption process.
“The right to appeal, enhanced through today’s amendments, demonstrates that ministers accept that mandation may force schemes away from doing what is in their members’ best interests.
“Under the amended bill, schemes must still prove likely financial harm before they are allowed to do what is best for savers. That misunderstands the principle at the heart of fiduciary duty. Trustees should not need state approval to act in the best interests of their members. These amendments just tinker at the margins; they do not fix the flaw in the policy.”
Members of the House of Lords subsequently voted in favour of an amendment scrapping all references to the mandation reserve power.
It is currently unclear when the bill will next be put before the House of Commons, with parliament set to be adjourned later this week ahead of the King’s Speech on 13 May.
