Pensions Minister, Torsten Bell, has confirmed that he will bring forward legislation to allow the government to develop statutory guidance for the trust-based private pensions sector, providing clarification on how trustees can comply with their existing duties when considering wider factors, such as climate risk.

Speaking during the third reading of the Pension Schemes Bill, Bell acknowledged that there has been a "long-running debate" around the scope of trustees’ investment duties.

Despite this, he clarified that "almost everyone involved in it agrees on one fundamental principle: a trustee’s primary duty is to act in the interests of scheme members. Nothing should change or undermine that.

However, Bell acknowledged that challenges remain, with an amendment to the Pension Schemes Bill, tabled by Labour MP for Birmingham Hodge Hill and Solihull North, Liam Byrne, highlighting that different trustees continue to take different approaches to interpreting those duties, particularly in how they take into account structural factors such as climate risk and members’ standards of living when they are making investment decisions.

Given this, Bell agreed that more clarity about the ability of trustees to take into account such factors would help.

However, he argued that, rather than hardwiring that into primary legislation, there are advantages to consulting more fully and retaining an ability to be responsive to future developments. 

"I can therefore announce today that I intend to bring forward legislation that will allow the government to develop statutory guidance for the trust-based private pensions sector," he stated.

"The guidance will encapsulate those wider factors set out in his new clause, with the goal being to provide practical support to trustees about how to comply with their existing duties in considering these factors, including what we mean by systemic risks and standards of living. 

"There is good support in the industry for providing that clarity, giving added confidence to trustees that they can invest in the long-term interests of their members and our society. We will set out more details on our guidance plans in due course."

Pressed on the details, Bell said that he hopes to bring forward clarity on the next steps in a matter of months, and confirmed that he would envisage taking powers in primary legislation, before then consulting on the statutory guidance relating to the powers provided to the government.

"That is the order in which I would think about it, but I will endeavour to provide more clarity on the timeline," he stated.

Bell suggested that there is support for such a change across the industry, arguing that "it is time that we get on with setting out more details and providing that clarity to trustees so that, rather than debating whether trustees have the ability to invest with these longer-term structural or systemic factors in mind, they can get on with doing so, if they so wish".

"I should say that this is about giving trustees that ability and not specifying that they must do so," he clarified, however.

The news was welcomed by fellow MPs, as SNP MP for Aberdeen North, Kirsty Blackman, emphasised that "we all think that is a good thing, as trustees have a difficult job to do and providing them with more guidance is incredibly helpful".

Byrne also welcomed the news from Bell, suggesting that "if he gets his skates on, he can table an amendment in the other place once the Bill moves from our precious hands".

However, Byrne argued that "mere guidance is not enough, because sometimes it can be ignored".

"Guidance does not eliminate liability risk and does not give trustees a solid statutory floor, so I urge the Minister to ensure that the legislation he brings forward delivers guidance that is statutory in its bite," he continued.

"I urge him to go big, by pairing guidance with underpinning regulation that gives trustees legal clarity; to go broad, by ensuring that every single kind of scheme falls within the ambit of the legislation; and to be specific, by explaining precisely what those powers can be used for and the way in which they can be allowed to ensure productive investment."

He also argued that this clarity, if done in the right way, could avoid the need to resort to the mandating powers that MPs and industry experts have objected to.

"It could unlock investment by giving schemes confidence to act, rather than making them fearful and hesitant," he stated.

"We ask trustees to act in members’ best interests, yet the law today is so unclear that many of them feel unable to invest in the very things that could secure the long-term interests of their members: growth, productivity, and the living standards on which those members will one day rely.

"Today’s rules were built to ensure prudence, but what they are doing is creating paralysis.

"A framework that was meant to safeguard the future is, in practice, preventing pension savers from shaping that future. Scheme providers want to do more, members expect them to do more and our country needs them to do more, but all that can only happen if parliament now provides the clarity that the courts have not provided."

But broader concerns around mandating remain, particularly in terms of the impact on fiduciary duty.

In particular, the MP for North West Norfolk, James Wild, argued that the proposed reserve power is "a bad policy", which "goes against the fiduciary duty of trustees to act in the best interests of savers".

"Trustees and fund managers currently bear a legal responsibility to protect and grow these savings," he stated.

"If mandated investments failed, who would be accountable for the losses? Thirdly, this measure risks politicising the process. The role of trustees is to secure the best return for members, not to follow political whims. This is taxpayers’ hard-earned savings, not the government’s money.

"There is much agreement on the Bill, but there are important issues still to be addressed, especially around the reserve mandation power. It is fundamentally wrong, and I urge the Minister to listen to the industry and to back our amendments."

Indeed, the Conservative party have tabled two amendments in relation to the reserve power, one of which would prevent the use of the reserve mandation powers until the government produced a report on the reasons why the powers were needed and the effects of the use of such powers, and resolved any issues raised in that report, while the other would remove the power altogether.

Whilst Blackman said that she is "pretty relaxed about there being some mandation", she clarified that she would support the amendment calling for a report before the powers are used.

"I am, though, happy to support the Conservatives in their amendment that would require a report on what those mandation powers look like, because the more transparency from the government—the more transparency from everybody in this place, frankly—the better," she stated. "I therefore think a report on that would be absolutely grand."

However, both amendments were voted down during the final stages in the House of Commons, with the amendment to require a vote receiving 154 ayes and 303 noes, while the amendment to remove the power altogether received 143 ayes and 304 noes.

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