Members of the House of Lords have voted to remove the controversial mandation power from the Pension Schemes Bill in parliament today (19 March).
An amendment was passed with strong support in the Lords that effectively scraps any power the government might have to direct investments made by defined contribution (DC) auto-enrolment pension schemes.
It follows a similar defeat for the government on Monday regarding the power to direct decisions within the Local Government Pension Scheme.
Immediately afterwards, a further amendment was passed to introduce more nuance to the scale test, including exemptions when there is no clear benefit from consolidation.
“This dangerous power must be removed from the bill. Instead, the government should focus their efforts on identifying and removing the underlying barriers to UK investment.”
Lord Vaux, cross-bench peer
Zoe Alexander, executive director of policy and advocacy at the trade body Pensions UK, described the vote as “a win for savers”. Several industry bodies have consistently opposed the power since it was first mooted last year.
“Having the power on the statute book would expose millions of workers’ retirement savings to political cycles and undermine the duty of pension trustees to act at all times in the interests of savers,” Alexander said.
“Pensions UK’s preferred method to drive investment in UK markets is a voluntary approach supported by improvements to the investment environment. The Mansion House Accord, a commitment by 17 of the largest UK pension providers to back unlisted UK and global investment opportunities where they are in the best interests of savers, shows there is already strong support.”
“The government’s job is to create the environment for the best and most attractive investment ideas to come forward, not to beat pensioners with a stick and strong-arm them into financing their high-risk pet projects.”
Lord Fuller, Conservative peer
Pensions minister Torsten Bell has argued that some in the industry have warned of a “collective action problem” regarding investment in domestic assets and private markets, and Labour peer Baroness Sherlock, representing the government in the House of Lords, reiterated this point today.
Last week, speaking at the Pensions UK Investment Conference, Bell said the government would amend the mandation clause to clarify its aim to backstop the Mansion House Accord, rather than anything broader. This has yet to be put forward by the government.
“Individual providers face strong commercial incentives to keep costs low and to defer action until others move first,” Baroness Sherlock said. “The reserve power exists as a backstop to ensure that if voluntary progress stalls, the government have the means to act.
“Its presence in the bill sends a clear signal that the commitment to change is underpinned by more than good intentions, and it helps to give each provider confidence that the rest of the market will move too.”
However, other peers rejected the argument and voted to remove the powers from the Pension Schemes Bill. The amendment passed with a margin of 217 votes in favour to 113 against.
Peers make strong anti-mandation argument
Baroness Bowles (Liberal Democrat): “We would be placing trustees under a new adjudicator of fiduciary duty that has no fiduciary responsibility itself, and a government with an inherent conflict of interest – and, if I may say, no technical or regulatory qualification. Spending workers’ pensions instead of raising taxes is not fiscal discipline; it is concealment.”
Baroness Altmann (cross-bench): “I support the government’s aim of helping pension schemes to put more money into UK investments and growth. However, the way in which it is being done is the issue here, with unlimited powers and not incentives but diktats.”
Lord Vaux (cross-bench): “This unlimited mandation power can be used to direct trustees to invest in classes of assets or specific assets. It fundamentally undermines the fiduciary duty of pension trustees. This dangerous power must be removed from the bill. Instead, the government should focus their efforts on identifying and removing the underlying barriers to UK investment.”
Lord Fuller (Conservative): “The pound shop pundits are trying to force-feed the riskiest parts of the market – the bits the other professionals turn their noses up at or consider are not right for the man in the street – down the throats of those for whom taking excessive risk is not necessarily the right thing. The government’s job is to create the environment for the best and most attractive investment ideas to come forward, not to beat pensioners with a stick and strong-arm them into financing their high-risk pet projects, with high fees and uncertain returns.”
Baroness Coffey (Conservative): “There seems to be an attitude that, because the government use tax relief in other ways to encourage people to invest in private pensions, all of a sudden they are somehow going to tell people what to do with their cash – instead of putting government taxpayers’ money into those projects – just because that cash is not being invested in projects the government want.”
