House of Lords warns ministers’ pension power grab ‘dangerous and unjustified’
A member of the House of Lords has described the reserve power in the Pension Schemes Bill as “dangerous and unjustified” as ministers face intense scrutiny over the detail of their overhaul of the pensions system.
Speaking in the House of Lords during an urgent question session, Baroness Stedman-Scott, a Conservative member, called out the power warning it gave the government a “sweeping authority” over how pension funds are invested.
The backstop power allows the government to mandate that defined contribution schemes invest a minimum percentage into specific areas, particularly UK private assets, if voluntary Mansion House Accord targets are not met.
Stedman-Scott said: “The government says this power is merely a backstop to the Mansion House Accord, but this is a gross misrepresentation.
“The pension schemes bill goes far beyond that and gives ministers sweeping authority to mandate pension investments to whatever level they choose”.
The state ‘should not be directing’ investment
The baroness added that the state should not be directing the allocation of private pension assets, arguing those decisions must be made by the trustees.
Her comments came after pensions minister Torsten Bell spoke at the Pensions UK Investment Conference on Tuesday.
He said: “The only purpose of the reserve power in the Pension Schemes Bill is to backstop the [Mansion House] Accord goals. We will ensure that it is put beyond doubt. As the legislation enters its final phases in the House of Lords, we will ensure it is clear that the reserve power is only for this one purpose.”
But both Pensions UK and the Association of British Insurers warned of the damaging effects of mandation and called for the power to be dropped entirely.
Pensions UK chief executive Julian Mund said last week that the current drafting of the clause “goes far beyond the scope of the Mansion House Accord and could be used to direct investment in very broad terms, either by this government or a future one”.
Stedman-Scott echoed these calls, claiming the policy “undermined” auto-enrolment, but Baroness Sherlock, parliamentary under-secretary of state for DWP, said the mandate would not be removed.
Sherlock said the government “had made it clear” the power backstops the Mansion House Accord and does not direct schemes into specific assets.
Why are pension funds not investing?
Lord Vaux of Harrowden went on to question why pension funds are not investing in the type of assets the government would like to encourage.
He said: “I ask that question because surely the better way forward is to understand what is stopping them doing so and fixing that problem rather than telling them to do something they don’t wish to do.”
Sherlock argued that investing a “small proportion” into proposed assets under the accord will bring better returns for savers, with too much focus remaining on “short-termism”.
The voluntary, non-binding agreement by the funds – the Mansion House Accords – could see increased investment into major infrastructure projects as well as greater venture capital investment into fast-growing startups, in a move which the Treasury hopes will create jobs and drive economic growth.
Under the terms of the accord, signatories have agreed to allocate at least ten per cent of all defined contribution (DC) funds into private markets by 2030, of which five per cent will go to UK private markets.