Baroness Bowles of Berkhamsted (LD)

My Lords, the Commons has asked us to accept a clause that reintroduces strict mandation of pension scheme asset allocation, traducing trustee fiduciary duty. There are two problems with the clause: the mandation itself and the discriminatory definition of investment vehicles that excludes listed investment companies—one of the two vehicles explicitly endorsed by the productive finance working group, composed of regulators, HMT and the wider investment industry. Both defects are fundamental. Until this clause appeared, there was broad political and industry alignment on the direction of travel, supporting trustees to consider a wider range of assets and ensuring that the Government play their part through the enablers set out in the Mansion House Accord. Nothing in that shared approach required coercion. Further, the Government’s own consultation evidence contradicts the justification for mandation. Ministers say that employers choose schemes based on cost and that private asset investment is too expensive. But the DWP’s own data, quoted in the consultation document, shows that investment charges are not in the “top three factors” for employer decisions. The top factors are convenience, professional advice and employer fees. Most schemes are already priced well below the charge cap and only 5% of employees ever switch schemes at all. The consultation stated that investment charges are not likely to feature heavily in employers’ decision-making. If that is so, the rationale for strict mandation simply does not stand, although I can see how the allegation helps to escape competition policy concerns about strategy co-ordination. But do not forget that value for money is meant to solve the focus on cost. There can be perfectly good reasons why a scheme has not invested in a particular asset or asset class—reasons recognised explicitly in the Mansion House Accord itself. Ministers say that this clause is just a back-up to the accord, but it does not reflect the accord’s own terms: its dependence on government actions and the critical enablers. Instead, the clause is a doubling down, not a codification. The Government admit that it is intended to be and will be coercive merely as a reserve power. Ministers have also spoken often about crowding in investment and using pension capital to give confidence to the wider market, but coercion does the opposite. If investment has to be compelled, the signal to the wider market is not confidence but doubt—crowding out, not in. Wider market effects have consistently been overlooked in the drafting of this clause, but it is not something that this House should ignore. The overriding principle is that government must not undermine fiduciary duty, whether by mandation or coercion. Therefore, we should continue to insist on our amendment and disagree with the Commons. I intend to test the opinion of the House at the appropriate time. I beg to move.