Baroness Stedman-Scott (Con)

My Lords, I will speak briefly to some of the amendments in this group. At the outset, I thank all noble Lords who have tabled amendments and contributed to the constructive discussions we have been able to have on these issues. While I will focus my remarks on some of the amendments, we understand the direction of travel intended across this group. Taken together, these amendments largely seek to ensure that the process of releasing surplus funds from defined benefit schemes is carried out on the basis of sound professional advice, in close communication with scheme members and with their interests properly safeguarded. The group also includes a technical amendment from the Government, which tightens up the drafting of the Bill and which we are content to support. Amendment 13 in the name of the noble Baroness, Lady Altmann, would introduce a formal decision-making safeguard before schemes even create the legal power to pay surpluses to employers. In practical terms, it would ensure that trustees have received and considered formal actuarial advice before making such a change to the rules of the scheme. That matters because altering the rules of a scheme to enable surplus extraction has potential implications for the long-term funding position of the scheme and for the security of members’ benefits. Amendment 13 therefore performs two important functions. First, it seeks to ensure that trustees properly understand the impact that surplus distribution could have on scheme funding before rule changes are made. Secondly, it requires them to consider alternative approaches to dealing with surplus that may benefit members instead, such as running the scheme on, transferring to a superfund or securing benefits through annuities. In other words, it ensures that sound professional advice is formally incorporated into the process before it can be completed. That process is then complemented by Amendment 15, which addresses the next stage of the decision. While Amendment 13 concerns the creation of the power, Amendment 15 would ensure that advice is taken when trustees decide whether to exercise that power and pay surpluses to the employer. Under this amendment, trustees would be required to obtain actuarial advice and to consider the risks and benefits of alternative approaches before distributing surplus. They would therefore need to evaluate options such as reducing or pausing contributions, running the scheme on, transferring to a superfund or buying out liabilities. Ensuring that these risks and alternatives are considered in sufficient depth is critical. It helps to make sure that trustees’ fiduciary duties remain at the centre of the process and that decisions about surplus are taken in a careful, balanced and professionally informed way. Amendment 17 would retain the existing requirement that trustees must be satisfied that the exercise of the power to pay surplus is in the interest of scheme members. As noble Lords will know, that protection currently exists in the Pensions Act 1995, but the Bill as drafted would remove it. Retaining that test would represent a major governance safeguard. It ensures that trustees continue to place members’ interests at the heart of their decision-making when considering whether surplus should be returned to the employer. That seems to us both sensible and entirely legitimate. The Government should give serious consideration to adopting this change because members’ interests should always remain central to the operation of pension schemes. The reforms proposed in the Bill potentially open a pathway for surplus to be released from defined benefit schemes. If that pathway is to command confidence, it must be underpinned by strong governance, professional advice and meaningful member engagement. The amendments in this group help to reinforce these principles. We welcome the opportunity we have had to debate and discuss these important issues.