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.
The government is undertaking a once-in-a-generation review of the UK pensions system. It is much needed, and they have made some welcome proposals. However, they are missing the single biggest threat to long-term retirement security: climate change and the accelerating destruction of nature.
By refusing to confront this reality, they are letting down pension savers and the pensions industry alike.
UK pension schemes continue to hold substantial investments in fossil fuels, including new coal, oil and gas projects. These investments drive environmental degradation while exposing savers to serious financial risks as the global economy transitions away from high-carbon assets.
My recent parliamentary questions revealed that the government is not even monitoring the sector’s exposure to these risks – a startling omission given the overwhelming evidence.
Parliament and the pensions industry have a shared interest in ensuring the long-term sustainability and stability of the pensions system. That stability is undermined when savers’ money is channelled into risky, volatile sectors that could soon become stranded assets, and which are accelerating the destruction of nature and the climate upon which broader economic and social stability depends.
The Liberal Democrats have long championed these issues, building on our 2024 manifesto commitments. We have worked across parties to urge the government to follow the science, recognise material financial risks, and act in the long-term interests of savers. Yet the current policy framework – centred on transparency, voluntary action and climate-risk disclosure – has simply not delivered the change needed to protect either pensions or the planet. A responsible government would pause, take stock, and rethink.
What the Lib Dems’ amendment proposes
It is apparent that a more directive framework is needed. That is why I have tabled an amendment – New Clause 19 – to the Pension Schemes Bill, due for debate on 3 December. It proposes two targeted, proportionate measures.
First, it would give ministers the power to require pension schemes to exclude companies with significant exposure to thermal coal, which is among the dirtiest and most polluting of fossil fuels. Many leading pension schemes already do this voluntarily. Making this a statutory minimum standard would bring consistency across the sector and prevent laggards from undermining progress.
Second, it would establish a structured review mechanism to consider future restrictions on fossil fuel investments. This measured, evidence-based process provides a practical way to manage systemic climate risks without forcing abrupt or disruptive changes to investment strategies.
Divestment proposals are sometimes dismissed as unnecessary or ineffective, but these arguments simply do not stand up. Despite eliminating coal from its own power grid, the UK continues to fund coal expansion overseas through its pension savings. Recent research found that half of the largest automatic-enrolment master trusts remain invested in thermal coal or other unconventional fossil fuels. Relying on engagement and stewardship is simply not good enough.
The notion that UK action ‘makes no difference’ simply does not reflect the scale of our market: the UK pension sector is the largest in Europe and the third largest globally.
Demand for assets with no long-term future is not infinite. Withdrawing support for fossil fuel expansion raises the cost of capital for high-risk projects and encourages companies to shift strategy – while protecting pension savers from exposure to assets that are already being overtaken by clean alternatives.
The success or otherwise of the government’s pensions review must be judged on whether it can deliver a promise of a safe, secure retirement for all. While ignoring the single greatest threat to that promise, it is set to fall far short of what is needed.
The Pension Schemes Bill poses a clear question: will the government back a world-leading pensions industry that supports a sustainable future, or continue to overlook the risks threatening both savers and the planet?
Manuela Perteghella is the Liberal Democrat MP for Stratford-on-Avon.
