Baroness Penn (Con)

My Lords, we have had a wide range of expertise in the speakers today, although I suspect that the noble Lord, Lord Davies of Brixton, might be the only one of us who could not think of a better Christmas present than a pensions Bill. I am also conscious that my remarks stand between the House and the much anticipated maiden speech from the noble Baroness, Lady White of Tufnell Park, to which I too am looking forward, so I will try to be brief and focused. I want to touch on three areas but before that, like many others, I welcome many aspects of this Bill, including on consolidation and value for money. However, there are important areas of detail that the Government need to provide for us to understand how they will better work; in particular, around the requirements on scale and value for money, and what they mean for competition and market dynamism, as the noble Baroness, Lady Altmann, and my noble friend Lady Noakes have spoken to. There is also the risk that, at some point, scale no longer promotes investment in innovation and scale-ups, as those businesses would no longer be able to meet the minimum investment thresholds for very large funds. The first area I want to focus on, which may be no surprise, is mandation. I am not convinced about the decision to include a mandation power in the Bill, as others have said. I will not repeat those arguments, but if I was convinced of the case for mandation, I would not be convinced of how it is being legislated for in the Bill as it stands. We are told that it has a sunset clause, but that is not the case. The 2035 deadline is only for increasing the maximum allocations set out by regulation and before this sunset moment, as I read it, there is no maximum limit on what proportion of investments can be mandated. I ask the Minister: why not? If the Government want to use the existence of this power to drive delivery against the Mansion House Accord, why not set a maximum level of mandation in line with those commitments made in the accords? There is also absolutely no clarity on what assets may be mandated for investment, only that they are not listed assets. In doing so, the Government have excluded a potentially important class of productive asset, as raised by the noble Baroness, Lady Altmann, and surely to be raised by the noble Baroness, Lady Bowles. I would also like to hear from the Minister whether the Government intend to change course here. As to what can be included within mandation, the answer appears to be: absolutely anything else. There are examples, of course, as to what the Government want to do but no legal limits whatever, and the prescribed assets can be altered at any time by regulation, in perpetuity. Normally, the argument for such an approach is to maintain flexibility. But given this is a power that the Government themselves say they do not want to use, surely the case for constraining it to the limits of what the Government intend could not be stronger. If a future Government wanted to go further than this, it would also seem reasonable to put forward further primary legislation to do so, because it is important not to think about the use case one might agree with, but the one that one might disagree with. I can think of credible cases being put forward for mandating for portions of assets significantly above 5% or 10% for investment in net zero or defence, to name two examples. I make no judgment on the values of these: rather, I ask whether, even if noble Lords might support one of those use cases or scenarios, they would support the other. In explaining the need for the power that the Government do not expect to use, the Pensions Minister has said that its existence will provide clarity to industry. But, for clarity, we need more detail than is included in the Bill: the definition of a qualifying asset and the percentage required. To provide that clarity, you would need to provide draft regulations. Is that the intention of the Government, will we see them during the course of the Bill and can the noble Baroness set out a timeline for us? If the Government do not wish to use mandation, perhaps I might ask the Minister what feedback she has had from pension providers on the barriers to investing in the UK economy, and what action the Government are taking to address those, both to increase the pipeline of investment opportunities but also, specifically, regulatory barriers that have been raised by providers. Are the Government committed to looking at those also, and over what timeline? I also ask the Minister what happens if valuations change, over time or in response to a specific shock? There is a lot of detail to be looked at with regard to how the mandation powers will work, as well as the principle of them. The second area I want to touch on is fiduciary duty. This was something that noble Lords discussed in some detail during the passage of the Financial Services and Markets Act, during which I committed to this House that the Government would consider the work of the Financial Markets Law Committee and host their own round tables to consider whether further action was needed. One of those round tables did take place, but I am afraid further ones did not. The Financial Markets Law Committee reported in 2024, however, and made it clear that, in its view, it is proper for pension fund trustees to consider climate change, along with other factors, when discharging their fiduciary duties. As the Pensions Minister conceded in the Commons, however, “more clarity about the ability of trustees to take into account such factors would help”.—[Official Report, Commons, 3/12/25; col. 1043.] The Minister committed to bringing forward legislation that will provide statutory guidance in this area. Could the Minister confirm whether that legislation will be in this Bill and, if so, when we can expect to see those amendments, and also the timescale for the statutory guidance to be produced? Given that there will continue to be different interpretations of the underlying law in this area, I ask the Minister why an amendment in primary legislation would not be preferable to address the issue? Finally, in the same discussions around fiduciary duty during the Financial Services and Markets Bill, the issue of deforestation-linked finance was discussed, including in relation to pension funds. Could the Minister update the House on the Government’s plans to bring forward regulations under Schedule 17 of the Environment Act 2021 to ban the import of forest-risk commodities and conduct a subsequent review to assess whether the financial regulatory framework is adequate for the purpose of eliminating the financing of illegal deforestation, and to consider what changes to the regulatory framework may be appropriate in this context? The EU’s framework on deforestation-linked finance is coming into force this month, so it would be a timely moment for the Government to set out their plan in this area. Finally, the Bill does nothing to address pension adequacy, as we have heard. My noble friend Lady Stedman-Scott and the noble Lord, Lord Sharkey, have highlighted in particular the issue of self-employed people and pension adequacy. I will be focusing in particular on the women’s pension gap, which remains at over 30%. My understanding is that there has been little progress on narrowing that gap over the years, and what progress has been made is as a result of men’s contributions falling, rather than any improvement in contributions from women, and I do not think that is the right way to be narrowing the gap. We are storing up huge inequalities in retirement unless further action is taken. Can the Minister reassure me and this House on the action that the Government are planning in this area, both potentially through the commission but also alongside and in advance of its work.