On 7 July 2025, the Pension Schemes Bill received its second reading in the House of Commons – meaning that MPs have approved the purpose and principles of the Bill but not yet its details.
The next step will be for a committee of MPs to scrutinise and vote on each clause, and to consider amendments. This work will begin on 2 September and conclude by 23 October, after which the Commons will approve a revised version to send to the House of Lords.
While the second reading debate was hardly the Parliamentary equivalent of a seven-goal thriller, there were some highlights:
Defined benefit surpluses
- Discussing how surpluses might be shared between employees and members, Torsten Bell, the pensions minister, said: "I would expect employees [sic] to benefit in most cases, because trustees are in the driving seat...Obviously, the exact split between the two will be a matter for the individual cases...". Anticipating where future debate might focus, he added: "I am sure we will discuss that further in Committee."
- Discretionary increases in respect of pre-1997 accrual were "one thing" that the minister would encourage trustees to "prioritise" when considering how members might benefit. He explained to MPs that, because trustees control whether a payment is made to the employer, they can say: "we are only going to agree to it on the basis of a change to something that the employer holds the cards over"
- Closing the debate on behalf of the Government, DWP minister Andrew Western said that regulatory guidance around surplus release "may well be teased out in Committee". This hints that draft guidance from The Pensions Regulator might be available soon – and that its content is expected to make Parliamentarians more likely to support the relevant clauses
- Speaking for the Conservatives, Mark Garnier, the Shadow Economic Secretary to the Treasury, said: "In principle, we support greater flexibility when it comes to the extraction of these surpluses, but there need to be robust safeguards… there is nothing to stop these surpluses being used for share buy-backs or dividend payments from the host employer…We would welcome a strengthening of the Bill to prevent trustees from facing undue pressure from host employers to release funds for non-growth purposes." The previous Government's February 2024 consultation paper had listed a "core proposition" that "extracting surplus will not be conditional on use of funds for particular purposes"
- Mr Garnier added that the Government "should carefully consider whether low dependency, rather than buy-out levels, will future-proof the funds, so that they do not fall back into deficit". The previous Government had envisaged setting a margin above low dependency when specifying the funding level above which trustees could choose to make payments to the employer. The current Government is "minded" not to incorporate such a margin (and therefore to deliver more symmetry with the funding regime, which does not require schemes to aim for funding levels above 100% of low dependency), though this will be left to regulations and trustees will be free to add their own buffer. On X (formerly Twitter), the Shadow Chancellor, Mel Stride, recently amplified a press headline about the Government's proposals making benefits less secure
Defined benefit superfunds
- Torsten Bell presented superfunds as "an alternative means to consolidate legacy DB liabilities". Making the case for "the long-awaited permanent legislative regime for superfunds", he said that commercial consolidators could increase "savers' security", help employers who "want to focus on their core business" and "use their scale to invest in more productive ways"
- Trustees, the minister said, "will be able to agree to a transfer into a superfund only where buyout is not available". Note the use of the present tense in "is not available". Under the interim regime, superfund transfers are not permitted where a scheme can buy out or where it has a realistic prospect of being able to do so within five years. The Bill drops the second part of this "gateway test" but allows the Government to restore it (or a variant) through regulations. Meanwhile, the impact assessment accompanying the Bill assumes that schemes within reach of buyout will not be candidates for superfund entry. As mentioned later in the debate (see below), it has not always been easy to find consensus within Government on the details of superfund policy, so where to draw the line might still be a live question. One thing to watch out for as the Bill progresses will be any hint about whether/how the Government intends to use its regulation-making powers in this area
- Lincoln Jopp, a Conservative MP, sought reassurance that superfunds would be able to offer a 10-15% discount on buyout pricing, and suggested ways of achieving that. Mr Jopp used to work for The Pension SuperFund and discussed "the scars on my back" from dealing with The Pensions Regulator. He concluded that, in the past, the regulator "did not see why it should take any additional risk if politicians were not going to" and suggested that primary legislation should give TPR a clear idea of the market it was being asked to regulate. Recalling past disagreements on superfund policy within government, he wondered whether the minister had been able to "reprogramme" the Governor of the Bank of England (who, in 2020, reportedly criticised "regulatory arbitrage" between the superfund and insurance regimes)
Mandating defined contribution asset allocation
- The Bill includes powers to stipulate that Master Trusts and Group Personal Pensions can only be used for automatic enrolment if they allocate minimum percentages of their default funds to prescribed asset classes (which cannot include most public markets). Torsten Bell said that this clause was included because "pension providers…face a collective action problem" (whereby those allocating assets to private markets could be undercut on fees) and because "words have been slow to translate into actions". He added: "I do not currently intend to use the power in the Bill, but its existence gives clarity to the industry that, this time, change will actually come."
- This provision looks set to be the most controversial one in the Bill: it was described from the Conservative front bench as being "the part of the Bill on which we have our most fundamental disagreement"
- Developments since the debate have not dampened the controversy:
- The Office for Budget Responsibility warned that "pressure on the state to support savers in the face of low or volatile returns could increase if government involvement in defined contribution investment strategies were seen as material in future"
- The Governor of the Bank of England reiterated that he does not think mandating investments is "appropriate". (Some reports have presented this as a new and dramatic planned intervention; in fact, Andrew Bailey was asked a question at a press conference and began his answer by saying "I've said before…". The Government will have known that he had made headlines with similar comments in October when it put the clause in the Bill.)
- It appears that a version of the 15 July Mansion House speech released to the media in advance indicated that the Chancellor would say she was "confident that I will not need to use that power". However, Rachel Reeves omitted these words when she delivered the speech. Was that for an innocuous reason (the event was running behind schedule) or because she thought better of saying it?
Next steps
The Committee will have a large Labour majority, reflecting the make-up of the House of Commons, so it is unlikely that the Bill will be amended in ways that the Government is not content with.
That is not to say that the Bill will emerge from the Committee in its current form: the Government itself is likely to want to tidy up some of the drafting and/or propose new clauses. It remains to be seen whether an amendment to this Bill will be the vehicle the Government uses to honour its commitment to allow retrospective actuarial certification of benefit changes that might otherwise be ineffective following the Virgin Media judgment.
At the time of writing, the Committee's membership has not been determined, but we should expect most of the talking to be done by the pensions minister and by MPs from opposition parties; the principal role of most Labour members will be to help the Bill progress by voting in the required way. Employers and trustees with strong views on the Bills provisions may wish to note that a Call for Evidence has been issued ahead of Committee Stage.
