The Pension Schemes Bill (PSB) cleared parliament last night (28 April), after the House of Lords accepted final amendments introducing new ‘guardrails’ on mandation powers.

The Bill has undergone several rounds of ‘ping pong’ between the House of Commons and the House of Lords in recent weeks, as peers pushed back on the scope of the government’s proposed mandation powers.

As a result of the pushback from the House of Lords and the wider pensions industry, the government’s power to determine how pension schemes invest is now far narrower in scope than first drafted, as well as being time-limited.

With both Houses now agreeing on the final text, the Bill will proceed to Royal Assent, after which it will formally become law.

The move to curb mandation powers has been welcomed by the industry.

Pensions Management Institute (PMI) chief strategy officer, Helen Forrest Hall, said her organisation “fully supported” the Lords’ opposition to a “sweeping reserve power to require specific asset allocations” and is pleased that the “government has introduced important guardrails”.

While Association of British Insurers (ABI) director of long-term savings, Yvonne Braun, said her association “strongly supports the overall package”, it remained concerned by the inclusion of a reserve power to mandate how pension funds invest.

“However, the many additional safeguards we proposed should help to limit any potential negative impact. In particular, the concessions now reflect our calls for an independent assessment before the power can be used. We'll now work closely with our members as they start implementing the wide-ranging measures introduced through this landmark legislation,” she added.

Independent Governance Group (IGG) head of policy and external affairs, Louise Davey, also remained cautious of the mandation powers that remain in the PSB: “The core principle of effective trusteeship is the ability to act in the best interests of their members, consistent with their fiduciary duties. Mandation flies directly in the face of this.

“We’re pleased to see that the government has backed down and significantly reduced its proposal, however, it still has clear remnants of a mandation-led approach, which has no place in a healthy and fully functioning pension ecosystem.”

Although she said it was “admirable” to use pension capital to help fuel the UK economy, she insisted the focus should be on “enabling, not directing investment”.

“This is done through building a pipeline of strong projects that support the UK’s economic goals, but also clearly demonstrate how they will deliver returns to savers,” she added.

In addition, Pensions UK chief executive, Julian Mund, described the passing of the PSB as a “victory for pension savers” whilst praising the “drastically scaled back” power to allow government to direct how schemes invest.

“Pensions UK and its members have played a leading role in shaping this legislation in the round, from policy formation through to today, and now our attention will turn to two things. First, the regulations that will put these reforms into action.

“And second, working with the Pensions Commission so that the systemic change delivered by the Bill is accompanied by more savings overall – giving us the best chance of delivering the retirements people rightly expect.”

Despite the debate on mandation taking the spotlight as the Bill passed through parliament, the PSB also contains “several important market reforms that will drive scale and efficiencies” according to People’s Partnership CEO, Patrick Heath-Lay, who described the passing of the bill in parliament as a “historic moment for the UK”.

This includes a requirement for schemes to provide retirement income solutions, rather than leaving savers to navigate complex decisions at the point of retirement. It also enables the automatic consolidation of small pension pots, aimed at reducing costs and simplifying the system for members, and underpins a new Value for Money (VFM) framework designed to shift employer focus from cost to overall scheme value.

Furthermore, provisions to allow defined benefit (DB) schemes to release surplus under new rules are included, alongside a legislative framework for commercial superfunds, intended to support the consolidation of DB liabilities while maintaining member protections.

The bill also seeks to drive further consolidation across the pensions industry, with the aim of improving efficiency and enabling schemes to develop in-house investment expertise and more sophisticated strategies to support stronger long-term returns.

Heath-Lay said his company was “particularly encouraged by the introduction of default consolidator schemes, which offer a strong solution to the long-standing challenge of small, deferred pension pots, alongside the inclusion of Value for Money (VFM) measures within the legislation”.

He continued: “Ensuring savers can clearly understand and assess the real value offered by different providers is essential. Equally, we welcome the proposals to introduce default decumulation solutions to support members both plan and manage their retirement savings effectively.”

Meanwhile, Broadstone head of policy, David Brooks, said attention will now turn to the “significant programme” of consultations, which will determine how these reforms operate in practice.

“The measures coming forward are highly interrelated, covering VFM, consolidation, decumulation and endgame options, and the challenge will be to ensure they are developed in a coherent way rather than in isolation.

“The next phase of consultations will need to keep a clear focus on how these reforms improve member outcomes in practice. Consideration of UK productive finance should form part of that assessment, but always through the lens of member value, security and retirement outcomes.

“With a rolling pipeline of consultations expected over the next 12 to 24 months, trustees and employers will need to remain closely engaged as the detail is shaped.”

Lumera commercial director: data & dashboards, Maurice Titley, added that the legislation will create a regulatory environment that “requires strong governance and robust data to adapt”.

“In the DC market, the reforms will usher in a period of accelerated consolidation activity as providers look to achieve scale.

“The growing focus on providing default retirement solutions and VFM will force providers to invest in their data and administration systems to ensure that their operations are able to cope with this shift.

“Ultimately, technology is likely to be the defining differentiator in this new environment. The challenge for the industry is not understanding what needs to be done but delivering it safely and consistently within live systems while maintaining member trust.”

In addition, Investment Association senior policy adviser, pensions and institutional market, Imran Razvi, said: "The Pensions Scheme Bill is an important step in consolidating the UK's pension system to help create sophisticated scale at UK pension schemes, improving their ability to deploy capital through enhanced scheme governance and investment processes.”

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