Contribution
My Lords, I will speak to government Amendments 156 and 178 in my name. I am delighted to bring forward an important amendment to this Bill, delivering on a commitment made by my honourable friend the Minister for Pensions in the other place to provide greater clarity and support for trustees exercising their existing investment duties.
Trustees and others tell us that, although their duties are well established in law, they lack practical tools to apply them in today’s complex investment environment. These amendments respond to that need by requiring the Secretary of State to issue statutory guidance explaining how these duties operate within the existing legal framework. For the first time, there will be a statutory obligation to provide accessible and authoritative guidance on the meaning and application of key legal concepts contained in regulations made under Sections 35 and 36 of the Pensions Act 1995, including the statement of investment principles and the provisions governing the choosing of investments.
Let me be clear: these amendments do not change trustees’ duties or prescribe outcomes. What the amendments provide is guidance that clarifies how the law works in practice. Across DB, DC and hybrid schemes, trustees and advisers have asked for concise, practical and legally grounded guidance. They want confidence that the law gives them the room to take proper account of long-term, financially material risks, such as climate change, biodiversity loss and evolving economic conditions when determining how best to invest in members’ interests.
At a recent round table chaired by the Pensions Minister, stakeholders stressed the need for guidance that distils existing law into simple usable terms supported by real-world examples. They were equally clear that the guidance must remain flexible and able to evolve as investment practice develops. The Government’s view is that fast-moving concepts such as standards of living, member views and complex system-level risks should not be hard-wired into primary legislation because they risk creating rigidity and could quickly become outdated. By contrast, statutory guidance offers a pragmatic responsive approach that can evolve alongside the global investment environment, stewardship expectations and emerging environmental, social and governance data.
Under these amendments, the Secretary of State will issue guidance explaining such aspects of the law as they consider appropriate. This includes clarifying key expressions, such as “financially material considerations” and the “best interests of members”, covered in existing regulations. The guidance will also use examples and case studies to illustrate how these concepts should be interpreted—something that trustees and advisers have repeatedly said would be of real value.
To ensure that the guidance is genuinely useful, DWP has convened a technical working group chaired by Sir Robin Knowles, a serving High Court judge whose leadership of the Financial Markets Law Committee’s work on fiduciary duties and sustainability brings deep expertise to this task. The group brings together experienced DB, DC and LGPS trustees, actuaries, investment practitioners, stewardship specialists, civil society representatives and senior pensions lawyers. The group has already met and agreed terms of reference. Its objectives include supporting DWP in developing statutory guidance that provides clarity and confidence to trustees without imposing undue prescription, translating existing law into practical expectations supported by real-world examples—for instance, showing how trustees might assess long-term financial risks linked to climate change, biodiversity loss, supply chain exposures, nature-related dependencies and stewardship escalation, as well as financially material social risks and other forms, drawing on good practice from schemes such as Nest, Brunel and People’s Partnership. The guidance will outline reasonable sources of evidence, data, member views and professional advice on which trustees may rely.
The group will look to recognise in guidance the differing capacities of schemes, with case studies showing how schemes of various sizes can meet the same principles in different ways. It will also identify appropriate areas of alignment with LGPS and FCA guidance to promote coherence across the pensions landscape. I know this will be of particular interest to the noble Baroness, Lady Hayman, who has asked about the interaction of this guidance with other pension schemes. I pay tribute to her for her work in this area and for the amendment she tabled, which, along with similar work in the other place, has prompted the Government to respond in the way they have.
As we have indicated previously, this guidance is intended only for occupational trust-based schemes, where questions of legal clarity arise most acutely. FCA-regulated providers operate under the consumer duty, and the LGPS already has its own guidance to LGPS administering authorities, setting out that they must include preferences on financially material ESG factors in their investment strategies. However, I can assure the House that the FCA, the Pensions Regulator and the MHCLG for the LGPS are fully engaged in the statutory guidance work to help to support alignment and share best practice.