Lord Sharkey (LD)

My Lords, I will speak briefly under the auspices of Amendments 146 and 147 when we resume some of the discussions the Minister promised last week to continue, notably on mandation and statutory guidance. In our debate last week, I tried to establish the evidence base for the Minister’s assertion that “the Government would not be proposing these powers”— mandation— “if there were not strong evidence that savers’ interests lie in greater investment diversification than we see today in the market”.—[Official Report, 22/1/26; col. GC 218.] The key words here are “strong” and “evidence”. There are certainly those whose opinions would align with the Minister’s assertion, but opinion is not the same as evidence and not nearly the same as strong evidence. As I said last week, the DWP recently commissioned the Government Actuary’s Department to model four variations of pension scheme strategies. I will not list them again, but the study concluded that across a range of economic scenarios the model portfolios deliver very similar projected pension pot sizes. But it also showed that if the current underperformance of the UK versus global equities persists, UK-heavy allocations will underperform the baseline. The Government Actuary’s Department said in a post on GOV.UK on 15 November 2024: “Our analysis showed that a greater level of exposure to private markets may deliver slightly improved outcomes to members. However, there is considerable uncertainty, particularly with the assumptions for projected future investment returns”. That does not sound like strong evidence for anything. The Institute and Faculty of Actuaries makes the same point. It says that, based on the Government’s own impact assessment, “We do not think there is strong, clear evidence that in most foreseeable scenarios savers’ interests lie in greater investment in private markets and infrastructure”. It believes that there exists a very uncertain central estimate of an extra two percentage points over 30 years, equivalent to 0.066% a year compounded. It goes on to say: “Given the inherent uncertainty in such estimates, this is almost negligible and could easily turn out to be negative over the next 30 years or indeed much higher”. The IFoA goes on to say: “The point is that it is far from clear that there would be a material benefit”. That does not sound like strong evidence commendation either, yet this is the basis on which the Government seek to mandate investment, which raises as a consequence significant concerns about the operation of fiduciary duty. The proposals in this Bill, for there is a power to mandate investment, cause uncertainty about trustees’ duties to their members. That uncertainty is understandable, especially because the case for mandation is weakly evidenced, if evidenced at all. The uncertainty is also unnecessary in many ways because of the existence of the Mansion House Accord for which, as others have said, 17 leading pension providers have already signed up. How will the anticipated statutory guidance, for example, contribute to the model of co-operation embedded in the Mansion House Accord? Is it no more than a useful threat? What role will the statutory guidance play in modifying the application of fiduciary duty? In fact, can the Minister confirm that the promised statutory guidance will have something to say about the possible clashes between mandated action and fiduciary duty, if only to confirm the primacy of fiduciary duty? Minister Bell responded on 22 January to a Written Question from my honourable friend the Member for Stratford-upon-Avon about the scope of the coverage of the upcoming guidance on fiduciary duties. His reply did not refer to the mandation powers at all. Will the Minister confirm that the guidance will be non-binding and have the same have force as many other “have regards” that exist in the financial services sector? If the guidance has, or could plausibly be read as having, detectable, real-world influence, it should come before Parliament for scrutiny, and it should come before us when we can recommend changes. Minister Bell’s Written Answer, as I mentioned a moment ago, says of the guidance that: “Work will commence shortly beginning with an industry roundtable to gather views and technical expertise to ensure the guidance meets the identified need”. I suppress my astonishment at this rather late start for thinking about statutory guidance. I notice that, in the reply, there was no mention of Parliament and the role it might play or of timescale in all this, except we now know that it has either just started or is about to start. In other words, as things stand, the likelihood of effective parliamentary scrutiny of anything to do with statutory guidance is unlikely. This is entirely unsatisfactory for the reasons that the noble Lord, Lord Ashcombe, has argued so forcefully. There is no compelling evidence that mandation will work. If the Mansion House Accord is to be taken seriously and the Government play their part, mandation will be unnecessary. Mandation would interfere with or complicate the principal of fiduciary duty. It is also opposed by major stakeholders including, as I mentioned previously, the Governor of the Bank of England. The Institute and Faculty of Actuaries ends its latest assessment of the situation by saying that trustees should not be leaned on to invest in ways that conflict with their own best judgment. Instead, those investments and markets that the Government wish to promote should continue to be made more attractive through initiatives such as LTAFs and so on. The pension schemes will freely choose to follow in a way that is right for them and their members. We agree with that and will continue to try to convince the Government that the reserve power is not necessary or desirable—activated or not—and that there is no sound basis for using it.