Lord Kirkhope of Harrogate (Con)

My Lords, I will briefly intervene because the probing amendments here are important to how we look at the precise nature of surpluses. Clearly, the principle of making it easier to return a genuine pension scheme surplus to employers is worthy of support, particularly given how much has historically been paid by employers into DB schemes, often at the expense of capital investment. But safeguards are absolutely critical—this is the point I want to make about the relationship between employers and trustees in this area. It must be a trustee decision to distribute surplus, and trustees must be required to consider how the surplus has accumulated, as was touched on by the proposer. Was it due to employer contributions, member contributions or strong investment returns? Under the proposed legislation, employers will no doubt apply immense pressure to steer the distribution towards them and not the members. In exercising their discretion, trustees must be unencumbered, properly advised and protected from the undue and inappropriate pressure that sponsoring employers will no doubt place on them. That is a real concern to me. We must be wary of employers exercising their powers to put in place weak trustees, who will not act in members’ best interests. We must also be wary of making it harder for trustees to distribute surplus to members in favour of employers. Surplus distributed to members through increased benefits will directly improve the position of the real economy through increased domestic expenditure and of course increased tax receipts. If we are to restrict the use of surplus assets away from scheme memberships to employers, we must ensure that surplus distributed to them is used for reinvestment in the UK economy through capital expenditure. I would like to hear the Minister’s view on that. On what a surplus is, the changes made by the Pensions Regulator to the DB funding code of practice in November 2024 have codified the requirement for pension scheme trustees to fund DB pension schemes very prudently—I think that those are the words that he used. Further, the investments that trustees are strongly encouraged to hold, through that code of practice, mean that the investment strategies are usually much lower risk than the insurance companies that many pension schemes are now being transferred to en masse under bulk annuity contracts. In June 2025, the Pensions Regulator issued guidance that suggested that excessive prudence or hoarding of surplus could be considered poor governance by trustees. If we are to make it easier to distribute surplus from pension schemes, the bar for that should not be so low that the security of member benefits is weakened and it should not be so high that it requires schemes to be excessively funded. The current bar of buyout funding is, in my opinion, far too high. Safeguards are important. It is absolutely critical that trustees are required to take appropriate advice and that actuarial advice is compliant at all times with the relevant technical actuarial standards. Trustees must be able to make informed, evidence-based decisions, unencumbered by the interests of the insurance industry and free from undue employer pressure. That particular relationship concerns me most in our probe into the functions of the surpluses. I hope that the Minister can give reassurances about the position of trustees—how they will be protected and by whom—in this particular contest or area of decision-making.