The House of Lords has rejected a proposed amendment aimed at limiting the government’s powers over pension scheme asset allocation, as scrutiny of the Pension Schemes Bill continues.

Peers agreed not to insist on earlier amendments that would have explicitly prohibited the government from directing pension scheme investments into specific assets or locations, after the House of Commons argued such provisions were unnecessary and could create ambiguity in the legislation.

Responding to concerns, the government reiterated that it does not intend to use the powers in Clause 2 to mandate investment decisions.

Speaking during the debate, Department for Work and Pensions (DWP) Lord in Waiting and Government Whip, Lord Katz, said: “The bill, as drafted, does not provide a legal basis for the government to tell asset pool companies what investments should be made or where those investments should be located.”

However, despite rejecting the amendment, the Lords subsequently voted in favour of further changes to the bill’s 'mandation' provisions.

Peers backed an amendment tabled by Liberal Democrat peer, Baroness Bowles of Berkhamsted, which sought to reinsert protections against mandatory asset allocation requirements, with the motion passing by 219 votes to 144.

Opening the debate, Baroness Bowles warned that the mandation powers risked undermining trustees’ fiduciary duties.

“The state should not be directing the investment of assets held by private funds,” she said, arguing that the clause represented “coercion” rather than a voluntary framework.

Concerns were echoed across the House, with peers questioning whether the proposed powers were compatible with trustees’ obligation to act in members’ best interests.

Conservative peer, Baroness Stedman-Scott, stressed that the provisions “directly undermine the principle of fiduciary duty on which the entire pensions system relies”, and added that any investment requiring government intervention was “not in the interest of savers”.

Crossbench peer, Lord Vaux of Harrowden, also warned that the safeguards in the Bill were insufficient, arguing that trustees could still be forced to invest in assets they did not believe were appropriate.

“Government mandation of asset allocation has no place in the regulation of pensions,” he added.

Despite these concerns, the government maintained that the powers were intended only as a backstop to industry-led initiatives, such as the Mansion House Accord, rather than as a tool for direct intervention.

DWP minister, Baroness Sherlock, said the provisions were “carefully bounded” and subject to safeguards, including limits on the proportion of assets that could be affected and requirements to act in members’ interests.

She emphasised that trustees would still be able to seek exemptions where compliance would result in “material financial detriment” to members.

Beyond the mandation clause, the Lords also backed further amendments relating to scheme scale and competition.

Peers voted in favour of introducing exemptions from scale requirements where schemes can demonstrate strong member outcomes or innovation, as well as measures requiring regulators to consider the benefits of competition when designing regulations.

The bill will now return to the Commons for further consideration, as the parliamentary 'ping pong' process continues.

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