Viscount Younger of Leckie (Con)

My Lords, it is a pleasure to open what I hope and assume will be another interesting debate. Once again, I hope it will shine a light on the flaws of mandation from new and specific angles that merit discussion. Amendment 115 in my name is a probing amendment, which goes to the architecture of the power itself. The Bill allows the Secretary of State to exercise the mandation power up until 2035. Why has 2035 been chosen for sunset? Why is it that particular year? Was that date chosen because it aligns with some evidenced policy rationale, a defined market transition or a known obstacle that is expected to have fallen away by then? A sunset date sets the constitutional balance between Parliament, Ministers and the pensions industry. A sunset clause extending to 2035 runs beyond the life of this Parliament and would allow very broad discretion for a Secretary of State, not merely to encourage investment but to direct it, in effect, by setting targets and conditions. That is an extraordinary proposition when we are dealing with the retirement savings of millions of people. I put a simple set of questions to the Minister. What analysis underpins the choice of 2035? Was it recommended by the department’s own evidence base? If the concern is a temporary set of barriers, for instance, a collective action problem, why is the power not time-limited to a shorter period, with a requirement for Parliament to renew it if, and only if, the evidence remains compelling? If the Government believe the power is genuinely a reserved power, why does it need such a long reserve? If the Minister cannot explain the logic of the date, it becomes harder to accept that the scope of the power has been calibrated with care. Amendment 152 relates to the review process following the exercise of powers under Section 28C—the mandation power. This is another probing amendment intended to test why the Government consider a five-year period an appropriate timeline for regulations to be reviewed and why an earlier review has not been proposed. Five years is a long time in pensions and financial markets. It is a very long time in the life of a saver, because compounding does not wait politely while Whitehall decides whether its intervention has worked. If an allocation has been distorted, returns have been impaired, costs have risen or liquidity has been compromised, five years is long enough for the damage to become embedded in outcomes. It is also long enough for market conditions to have changed so significantly that any review risks becoming a rear-view mirror exercise rather than a real safeguard. I ask the Minister directly, why five years? What is the justification? Is there evidence that a shorter review period will be impractical? Why are the Government not willing to commit to a more immediate post-implementation assessment, perhaps—let me be helpful to the Minister—within 12 months or two years, to ensure that any harm to savers is identified early? If Ministers believe the power is low risk, surely a quicker review should not trouble them. There is a further point. The Bill speaks of not only assessing the effect on the financial interests of members of master trusts and savers in group personal pension schemes, but of such other matters as the Secretary of State may consider appropriate. What precisely do the Government envisage falling within those other matters? Does it include costs to schemes, liquidity, operational complexity, market impact and whether compliance has forced schemes away from diversified strategies that would otherwise have been in members’ best interests? Does it include, as many fear, political metrics dressed up as economic analysis, such as whether a mandated allocation has supported a preferred sector or class of domestic asset? Most importantly, what happens if the review reveals that the financial interests of members have been harmed? What is the mechanism for redress and the practical remedy? Do the Government anticipate compensating schemes or savers? As the Committee will appreciate, we will return to the question of redress later in our proceedings. I now return to the subject of market risk through Amendment 115, which is intended to ensure that any review explicitly considers two linked dangers. The first is that mandated investment requirements may become misaligned with economic conditions. The second is that directing multiple schemes into the same assets could cause market distortion or asset price inflation. Mandation can distort markets in ways that are entirely foreseeable. If multiple large schemes are required, either explicitly or implicitly, to invest in the same asset class, the demand shock can inflate prices. If market participants interpret government direction as a signal of future price support, price movements can be amplified further; these arguments have been rehearsed not only in Committee but at Second Reading. Artificial price inflation then risks reducing long-term returns for pension savers because you are requiring schemes to buy after prices have been driven up, rather than allowing them to invest on value and fundamentals. It is picking winners and losers, not through the discipline of markets but through the blunt force of regulation. So I have further questions for the Minister, I am afraid. Has the department modelled the potential for asset price inflation in any asset class that might be subject to a mandated allocation? Has the department assessed the risk of crowded trades in which schemes find themselves paying more for the same exposure because the Government have forced them to compete with one another? Has the department consulted the Bank of England or the FPC on the risk that mandated flows could contribute to procyclicality or instability, particularly in less liquid markets? What is the Government’s plan if mandated allocations coincide with an already elevated valuation environment? There is a second risk: that of regulation falling behind economic reality. Mandated asset allocations risk becoming misaligned with economic conditions because compliance takes time. Requirements to hold a specified percentage in a particular UK asset class within a fixed timeframe may no longer be appropriate by the time schemes comply. Economic conditions, market valuations and government priorities can change far more quickly than regulatory mandates. This creates a real risk of locking savers into allocations that are no longer in their best financial interests. So, again, what mechanism will ensure that mandated requirements remain compatible with changing economic conditions? Will there be a duty to pause or suspend requirements when market conditions deteriorate? Will there be an explicit test that requires Ministers to show why a mandated allocation is consistent with the fiduciary duty at the point when it is imposed, not merely when it is first conceived? If Ministers insist that their fiduciary duties remain paramount, how do they reconcile that with a policy that, by design, substitutes government preference for trustee judgment? I am reverting back to that argument. Amendment 209 would require the Government to review the barriers that may prevent pension and investment funds investing in the UK, including regulatory, tax and fiduciary constraints; and to report their findings to Parliament. Instead of beginning with mandation then asking later whether it has caused harm, the Government should have started here. If Ministers genuinely wish to increase productive investment in the UK, their first duty is to diagnose the barriers properly. Stakeholders have emphasised repeatedly to us that limited UK investment by pension schemes is not a failure of willingness but reflects real constraints: government and regulatory burdens; risk weighting and capital requirements; liquidity constraints; scheme-specific funding and maturity considerations; fixed fees; and the economics of administering more complex, perhaps even less liquid, investments at scale. Many of those may be solvable issues but they require the hard work of reform, not the easy headline of compulsion. Addressing these barriers is far more likely to increase investment sustainably than imposing mandation, and care should be taken to avoid adding further unintended obstacles through legislation.