The government has sought to assuage concerns from the industry and parliamentarians over reserve powers included in the Pension Schemes Bill (PSB) on private pension scheme asset allocation.

In the House of Lords, Baroness Ros Altmann asked what assessment had been made of the need for ministers to possess powers to direct investment allocations or make investment in government-directed assets a condition for auto-enrolment schemes.

In response, Minister of State for Work and Pensions, Baroness Maeve Sherlock, said the bill included a reserve power on asset allocation that was designed as a backstop to Mansion House Accord commitments, and that the government did not expect to use this power.

“Were this power ever exercised, schemes that cannot meet the requirements without causing material financial detriment to their members will be able to apply for an exemption under the savers' interest test,” Sherlock continued.

“The power is time-limited, and subject to consultation, parliamentary approval, and robust safeguards.”

Altmann stated that, if the government’s main argument for including the powers was it did not expect to need to use them, and would only do so if schemes decided they did not believe it was prudent to achieve the allocations the government wanted, then she had “even greater concerns” about the measures.

“I would urge the government to think about overriding the trustees’ decisions about what assets to invest in,” she said.

“In particular, the government is trying to take unlimited powers in this bill to prescribe a percentage, we don’t know what that percentage might be, to invest in assets, we don’t know which assets they will actually be.

“Does the government really believe that it knows better than the investment industry how pension schemes should invest?”

Sherlock again highlighted that the power was being taken as a reserve power to back the “voluntary, industry-led Mansion House Accord”.

She warned there was always a risk that, for a “small competitive advantage”, a signatory may want to try and separate from the commitments.

“The reserve power is signalling very clearly to the industry: ‘this is the direction of travel, so let’s stay with it’,” Sherlock added. “All we are doing is backstopping that.”

Baroness Deborah Stedman-Scott argued that the government saying the power was just a backstop to the Mansion House Accord was a “gross misrepresentation”.

“The PSB goes far beyond that, and gives ministers sweeping authority to mandate pension investments to whatever level they choose,” she said.

“The state should not be directing the allocation of private pension assets. This policy risks undermining confidence in the entire auto-enrolment system, which was built on the promise that people’s savings would be invested in their interest, not the government’s. Will the government remove this dangerous and unjustified power from the bill?”

Responding, Sherlock said: “There is a short answer my Lords; the short answer is no. The long answer is that the government has made it abundantly clear what the purpose of the reserve power is, and it’s to backstop the Mansion House and trustee commitments.”

Sherlock stressed that the power did not direct schemes into specific assets or projects, but set a broad framework aligned with the Mansion House Accord commitments.

“Trustees retain full discretion over individual investment selection and the balance between asset classes,” she continued.

“The role of a pension trustee has always been to exercise judgment subject to constraints, and nothing in these provisions changes that.

“In terms of the Mansion House signatories, there is a very simple way for any Mansion House signatories to make sure this power is never used, and that is to keep to the voluntary commitments they have already made.

“Because, if that happens, there will be no need for the power ever to be used, the government will not be bringing it in, and everybody’s happy.”

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