Pensions Expert selects key topics, quotes and themes from the third reading of the Pension Schemes Bill, which took place yesterday (3 December) in parliament.
Torsten Bell, the pensions minister, introduced the session by explaining some of the key amendments the government introduced over the past few days, including scrapping the Pension Protection Fund (PPF) administration levy and introducing indexation for PPF members with pre-1997 benefits.
These amendments were duly passed without the need for a vote.
In his opening remarks, the minister stated: “We, as legislators, have more than gently nudged people into pension savings… The bill’s most fundamental job is to drive up returns on those savings. The case for this focus is clear: those retiring in 2050 are currently set to do so with lower private pension income than those retiring today.
“The bill also recognises that, with the second largest pension system in the world, pensions matter not just to deliver an income in retirement but for the whole economy as the largest source of domestic capital.
“With those goals in mind, this bill builds a solid foundation on which we can build, not least via the Pensions Commission over the next year.”
Changes to the Pension Protection Fund and Financial Assistance Scheme
The PPF was “one of the most important legacies of the last Labour government”, Bell said, but he acknowledged that members with benefits accrued before 1997 had suffered from a lack of inflation protection.
As announced in the Budget last week, many of these affected members stand to have their compensation payments linked to inflation, most likely starting from January 2027. Amendments agreed yesterday include a measure for the PPF to apply indexation to payments if it is clear the member’s scheme had promised this, but also if it was unclear what the previous scheme’s rules were.
The pensions minister said the changes “aim to bring the matter to a conclusion”.
“This change is real progress and rightly balances the interests of eligible members, levy payers, taxpayers and the PPF’s ability to manage future risk.”
Torsten Bell, pensions minister, on pre-1997 indexation for PPF members
He added: “I recognise that this does not go as far as some affected members would have wanted, but this change is real progress and rightly balances the interests of eligible members, levy payers, taxpayers and the Pension Protection Fund’s ability to manage future risk.”
Conservative MP James Wild, shadow Exchequer secretary to the Treasury, said: “We all want pensioners to have dignity in retirement, but when people have done the right thing by putting money in their pension and it is not followed through, that does not give pensioners the dignity they deserve.
“The issue around the pre-1997 indexation is also time-sensitive, like the infected blood scandal, and the longer the can is kicked down the road, the smaller the problem will become, sadly. We therefore broadly welcome the minister’s commitment to taking primary powers through [the amendments].”
Debbie Abrahams, chair of the Work and Pensions Select Committee, acknowledged the work of the Deprived Pensioners Association in campaigning on behalf of members with pre-1997 benefits. She also thanked work and pensions secretary Pat McFadden, adding: “What has happened is right, and I reiterate my thanks.”
Securing our future: Climate risk and the Pension Schemes Bill
Liberal Democrat MP Manuela Perteghella explains why her party is lobbying to include climate-related investment restrictions in the Pension Schemes Bill, as MPs debate the legislation in its third reading. Read the full article.
Other pre-1997 indexation issues
While MPs were supportive of the change to PPF and FAS rules, a significant proportion of yesterday’s debate was taken up by politicians calling for more action for those members of ongoing defined benefit (DB) pension schemes who did not have indexation due to company decisions.
Pressed by several MPs, Bell acknowledged the impact of inflation on non-indexed pension payments, but said the government did not support amendments tabled that would retrospectively change scheme rules.
Instead, he argued that changes to surplus release rules within the Pension Schemes Bill would “put trustees in the lead in a way that will help on this issue”.
He continued: “The [surplus release] changes give those trustees overseeing schemes without pre-97 indexation greater leverage in discussions with employers on discretionary increases, should those trustees see fit. I would encourage them to do so…
“I do not want to prejudge the individual discussions between all trustees and their employers… but trustees are in a stronger position given the changes on surplus release that we are introducing through this bill.”
“We are talking about a small, manageable number of schemes, but we want the trustees really to be given the powers to force those companies to make that indexation.”
Dame Nia Griffith, Labour MP, on indexation of pre-1997 benefits
However, Bell also added that “I am not pretending for a second that that solves overnight” the indexation issue for members of DB schemes outside of the PPF.
Dame Nia Griffith, Labour MP for Llanelli, urged the minister to expand on what support trustees could get in their discussions with employers.
“We know from lots of evidence that the only way the companies will listen is through legislation,” she said. “These companies are multinationals, and in countries where there is legislation, they pay up – so they do respond if there is a law.
“We want action on this. We are talking about a small, manageable number of schemes, but we want the trustees really to be given the powers to force those companies to make that indexation.
“If that proves not to work, there needs to be an opportunity to come back and put this into secondary legislation instead.”
Bell said the Pensions Regulator would soon be introducing guidance “to provide exactly that kind of clarity to trustees”.
Peter Swallow, the Labour MP for Bracknell, pointed out that not all pension schemes with pre-1997 benefits were in surplus.
He added: “However, it is vital that the bill marks the beginning of further action to bring justice to those with pre-1997 defined benefit pensions whose schemes are now in generous surplus…
“I think it important that we are as clear as possible that trustees will be given the powers they need to act and should follow through with concrete action to protect pensions. That is the right thing to do, and with the powers the government are granting in the bill, it is now in their hands to do it.”
Conservatives press minister on adequacy
James Wild, presenting the opposition’s leading arguments, criticised the lack of measures in the Pension Schemes Bill to address pensions adequacy. His party tabled a clause that would require a five-year review of the bill’s impact.
In response to a question from Wild, Bell said the Pensions Commission – which is effectively conducting the adequacy part of the government’s wide-ranging Pensions Review – would set out its final recommendations in early 2027.
Wild also called for changes to the scale requirements for defined contribution (DC) master trusts. Currently, the government wants all master trusts to reach a minimum of £25bn in assets as part of measures to raise governance standards and improve investment diversification.
However, Wild pointed out that the current wording could restrict competition and innovation. He cited the example of Penfold, which has just £1bn in assets under management and would likely fail to meet the conditions for the proposed “transition pathway” to reach the required scale.
“These are exactly the type of businesses that the government should be supporting,” Wild stated.
