Despite cross-party support for many of the planned changes included in the Pension Schemes Bill, its second reading in the House of Commons was dominated by concerns from MPs.

The Pension Schemes Bill returned to parliament yesterday (7 July) for its second reading, with Pensions Minister, Torsten Bell, suggesting that the pace of pension reform is now "ramping up".

Opening the debate in the House of Commons, Bell stated: "This bill aims to deliver fundamental reforms to our pensions landscape, and it is good to see that the prospect of discussing a long, slightly technical pensions bill has seen so many members flooding into the chamber.

"These are reforms on which there is a broad consensus across the pensions industry. They also build on at least something of a consensus across the House."

However, the minister faced a number of questions and concerns around the bill as it is currently proposed, with Hackney South and Shoreditch MP, Meg Hillier, raising concerns around the potential for mandating early on in the debate.

Mandation concerns grow as MPs weigh in

Conservative representatives also raised concerns over the "fundamental disagreement" had on mandation, with MP for Wyre Forest, Mark Garnier, warning that this "not only goes against trustees’ fiduciary duties...but means potentially worse outcomes for savers."

He stated: "These pension fund managers find the safest and best investments for our pensions, no matter where in the world they might be. If things go wrong, we can hold them to account.

"But if this reserve power becomes law, we have to ask the question: if investments go wrong, who carries the can? Will it be the pension fund manager and the trustees, or the Government, who did the mandation?"

Garnier also argued that whilst the reserve power in the bill focuses on the defined-contribution (DC) market, the shift in emphasis has potentially profound impacts across the sector.

"For that reason, we would welcome the Minister confirming whether any concerns have been raised by the Debt Management Office, and possibly the Bank of England," he said.

He also argued that there are better ways for the government to deliver growth, such as changing obsolete rules and removing restrictions.

"Rather than imposing top-down mandates, we want the government to maximise growth opportunities from our pension industry by turning over every stone and seeking out the unintended consequences of old regulations, not imposing new ones," he stated.

South West Devon MP, Rebecca Smith, agreed, stating: "While I know the Minister will stress that the government do not intend to use those reserve powers, that neither addresses concerns about what a different future government could do nor explains why those powers are being brought in. It could be asked why the reserve powers are being created at all."

Liberal Democrat MP for Torbay, Steve Darling, agreed with these concerns, whilst Democratic Unionist Party MP for Strangford, Jim Shannon, also stressed the need to ensure that the bill "does not become a mechanism for government to control the private pension industry and direct pension pots into government investment".

Oldham East and Saddleworth MP and Work and Pensions Committee (WPC) chair, Debbie Abrahams, also highlighted concerns that the WPC recently heard from industry, arguing that, rather than mandation, the pensions industry wants the government to concentrate on enabling the development of suitable assets for schemes to invest in.

Echoing Smith's concerns over the decisions a future government could take, Abrahams pointed out that Pensions UK has already called for the timeframe for the sunset clause, which prevents the use of the mandation power beyond 2035, to be reduced, suggesting that this should be just for the lifetime of the parliament.

Abrahams also highlighted several broader queries that still surround the proposed mandation provisions, calling on the government to provide further detail on the context for the criteria in which mandation powers might be used, and whether the government proposes to consult on the design of the mandation power and how to mitigate against unintended consequences.

Recognising that this is an issue that many MPs on both sides of the House are concerned about, Bell confirmed that "the bill explicitly recognises the fiduciary duty of trustees towards their members".

He also reiterated his assertion that the government does not currently intend to use the backstop power in the bill, arguing that "its existence gives clarity to the industry that, this time, change will actually come".

Whilst Bell acknowledged that there are concerns that the backstop power somehow undermines the duty that pension providers have to savers, he argued that "that is simply wrong".

"First, the bill includes clear safeguards to prioritise savers’ interests and is entirely consistent with the core principle of trustees’ fiduciary duties," he explained.

"Clause 38 includes an explicit mechanism, which I have discussed with Members from the main three parties in this house, to allow providers to opt out if complying risks material detriment to savers.

"Secondly—this is the key point that motivates a lot of the bill—savers are being let down by the status quo. There is a reason major pension schemes across the rest of the world are already investing in this more diverse range of assets."

However, mandation was not the only issue, as Bell also faced numerous queries over the safeguards that would surround the proposed DB surplus rule changes, as MPs raised concerns over historical cases and ongoing disputes, such as BP, Shell, and Hewlett-Packard.

In particular, Bell was encouraged to address potential loopholes surrounding discretionary increases, as MPs pointed out that some pensioners have been told by the trustees of their scheme that it is the sponsoring employer that has the power to award discretionary increases.

However, Bell suggested that the DB surplus rule changes could actually help address this, encouraging schemes to prioritise if they are considering a surplus release is the indexation of those that have not received it on their pre-1997 accrual.

"It may be the case that the employer, in the details of those scheme rules, is required to agree to a discretionary increase, but the trustees are perfectly within their rights to request that that is part of an agreement that leads to a surplus release."

Bell also said that he would expect employees to benefit more in most cases of surplus release, "because trustees are in the driving seat and I am sure they will want to consider how employers and employees will benefit from any surplus release".

However, in addition to better protections for members, Garnier pointed out that, under the legislation, there is nothing to stop these surpluses being used for share buy-backs or dividend payments from the host employer, for instance.

"Neither of these outcomes necessarily help the government’s growth agenda. We would welcome a strengthening of the bill to prevent trustees from facing undue pressure from host employers to release funds for non-growth purposes," he stated.

"In addition, to provide stability, the government should carefully consider whether low dependency, rather than buyout levels, will future-proof the funds, so that they do not fall back into deficit."

The (missing) elephant in the room

MPs also raised concerns over some of the larger omissions from the bill, as Garnier argued that "while there is much to welcome, there are also significant areas where the bill falls short and areas that require attention if we are to deliver a pensions system that is truly fit for the future".

"Most fundamentally," he said, "the bill does not address pensions adequacy. The uncomfortable truth is that millions of people in this country are simply not saving enough for their retirement.

"We urgently need the second part of the pensions review to be fast-tracked, with a laser-like focus on pensions adequacy. We need a bold, ambitious plan to ensure that every worker in this country can look forward to a retirement free from poverty and insecurity.

Mid Leicestershire MP, Peter Bedford, echoed this, stating that "my concern about adequacy does not mean that the nill does not have its merits".

"However, this is a missed opportunity for a government with a large majority. They could have acted more boldly, moved faster and improved pension adequacy throughout the United Kingdom," he continued.

Garnier argued that another omission in the bill is the failure to extend the benefits of auto-enrolment to the self-employed, arguing that "the bill misses an opportunity to come up with innovative solutions for this underserved group in the workplace".

The wider lack of detail was another area of concern highlighted by several MPs, as Garnier argued that "too much is left to the discretion of regulators and to secondary legislation".

He stated: "Parliament deserves to have proper oversight of these reforms. From my discussions with the industry, it seems there is tentative support for many of the reforms in the bill.

"However, the message that keeps coming back is that the devil will be in the detail, so I hope that as this bill makes progress through the House, the Minister will be able to fill in more of the blanks—and I am sure he will; he is a diligent individual. "

And there were also calls for broader consultation, as MP for North West Hampshire, Kit Malthouse, suggested that the government should consider making this a hybrid bill.

"My view is that, under this bill, [former and current public sector workers'] rights are being denied, and that through the hybrid legislation process, they or their representatives should have the right to petition the bill Committee and explain why they feel they are affected by investment pooling, the changes to fiduciary delegation and the asset consolidation.

"They are uniquely affected by this bill, which strikes profoundly at the governance of the pension funds they have paid into in a way that it does not for other pension funds in this country."

Hope for cross-party consensus yet?

Despite the concerns raised, the debate suggested that there is cross-party support for the bill and the work needed for it to successfully work through parliament and receive Royal Assent, provided there is some flexibility on the detail of the legislation.

Smith stated: "Some points have been made showing that that consensus is not entirely guaranteed, certainly among Conservative Members.

"While this bill makes a start, there is more to do to get it right, and we look forward to working with the government to achieve that. There is plenty of food for thought for amendments to take us forward.

This was echoed by Garnier, who said that the Conservative party "wants to go with, not against, the grain of what the government is seeking to achieve through this bill".

In addition to this, MP for Aberdeen North, Kirsty Blackman, argued that there is "massive cross-party consensus" on adequacy issues, calling on the government to agree to take this work forward in as cross-party a way as possible.

Closing the debate, Parliamentary Under-Secretary of State for Work and Pensions, Andrew Western, said: "I welcome the broad, if not entirely universal, support for the bill. The open discussion in which we have engaged today is important because, as a responsible government, we want the house to be assured that the new powers in the bill come with appropriate mitigations.

"We understand that members will have questions, and I have listened carefully to those that have been raised."

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