Can the next round of ‘ping pong’ save the pension schemes bill?
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Pardon the Interruption
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With two weeks to go until the King’s speech marks the start of a new parliamentary session, time is running out in the current stand-off between the government and the House of Lords over mandation. The House of Lords rejected further changes yesterday. The next ‘ping pong’ is due today.
The House of Lords has rejected a further version of the government’s controversial bid for a reserve power to direct that pension savings should be allocated to private markets and the UK.
On Monday, the government watered the disputed clause down a third time by changing the wording of the exemption test. Instead of trustees being exempt if they can show to the Pensions Regulator that submitting to mandation ‘would cause material financial detriment’, it was proposed to read ‘would be likely to cause material financial detriment’.
However, at 11.30pm, peers gave this further tweak short shrift. With 197 to 129, They voted for Baroness Sharon Bowles’ amendment to remove the power.
That the wording of the bill has still not been agreed is increasingly causing concern given the parliamentary session will end before 13 May. This is when the King’s speech sets out the legislative agenda for the new session. If the bill is not passed by then, it could fall unless a carry-over motion is passed, meaning it would continue in the next session. On 29 April, parliament rises for the May Day recess, returning only on 5 May.
Who will blink first?
Peers were adamant that as long as mandation is in the bill, it will not become law. Baroness Deborah Stedman-Scott said: “Our position remains unchanged: mandation has no place in the bill and, if the government are serious about securing its passage, they should remove it.”
The government, too, is keen to secure the bill’s passage, according to the Department for Work and Pensions minister in the Lords, Baroness Maeve Sherlock: “We need to find a way to get the bill agreed. Industry wants to get on with implementing the reforms and our pensioners want to start benefitting.”
It is currently not clear which side is more likely to back down. Some in the industry are beginning to view the government’s insistence on mandation as a question of pride, holding up reforms that would shape pensions for a generation.
Elaine Hiles, a senior knowledge lawyer at Norton Rose Fulbright, said: “As the mandation power continues to be watered down, it increasingly feels like a matter of political pride rather than policy need, and that is unfortunate.”
Industry groups have repeatedly expressed their disapproval of such a power. Even if mandation is narrowed down, the concern remains that there is no certainty about how a future government might use mandation, said Hiles.
“The government wants Royal Assent before the King’s Speech on 13 May 2026, which marks the end of the current parliamentary session, so the clock is ticking,” she noted. “Against that background, it is fair to question why the government is so determined to retain this power. The industry is broadly opposed to mandation, and the Mansion House Accord already secures voluntary commitments to increase investment in productive assets.”
Lack of trustee immunity and absence of pipeline promise criticised
Peers feel the risks of bringing in mandation are too great. Aside from market distortion, Baroness Bowles listed a host of concerns, including lack of consultation, interference with members’ property rights and trustees’ fiduciary duty.
The bill provides no legal protection for trustees where their investment decisions are due to government mandation, she stressed: “Trustees must act solely in the beneficiary’s interests, yet this clause directs them towards particular asset classes without any statutory defence or immunity. Trustees are left in a double bind: comply and risk personal liability or refuse and face deauthorisation.”
The government previously said that the bill reflects the Mansion House Accord, under which large providers have pledged to invest 10% in private markets, with at least 5% in the UK. However, Baroness Ros Altmann noted that the Accord required government to ensure that there are suitable investment opportunities.
“I point out to the minister that the Mansion House Accord had two parts. The second part had government obligations, on the basis of which the industry voluntarily agreed to invest in the private assets that the government favour. None of the government’s obligations is enshrined in the bill; they are hoped for,” she said.
She also highlighted that savers would bear the risk for the minister’s investment decision if the government does mandate. “The minister assumes that private assets will definitely outperform and that if savers do not invest in them, they will be losing out somehow. There is no underpin for the losses,” she said.
