Conservative and Liberal Democrat peers have voted down an amendment to the pension schemes bill requiring the government to issue guidance on fiduciary duty. The government defeat caused consternation as ministers apparently thought a consensus had been reached. 

Guidance to clarify how trustees can take into account systemic risks and living standards was announced by pensions minister Torsten Bell in December last year, with a suggestion that the government intends to consult. A technical working group of industry professionals has already started working on the guidance.
 

The government amendment that was put to a vote on 23 March would have required the government to issue the statutory guidance that trustees “must have regard to”.
 

However, the amendment unexpectedly did not pass, with 202 voting in favour and 225 against, as some peers were worried such an instrument would give the government too much say over pension fund investments.  
 

Baroness Ros Altmann said she thinks it is important to clarify fiduciary duty for trustees to allow them to factor in long-term returns and risks, such as future UK prosperity and environmental risks.

However, “the government intervention on this issue should not just be open-ended”, she added.
 

The outcome of the vote has been a surprise for some supporters. Campaign group ShareAction, which is represented on the technical working group, had backed the government amendment as a ‘second-best’ option. It has been lobbying for writing the clarifications around fiduciary duty directly into the pension schemes bill, which remains its preferred approach.
  

“It’s so disappointing to see such an important amendment voted down by peers, many of whom previously supported the proposal, with no clear justification,” said the group’s head of UK policy, Luke Hildyard.  
 

He argued that the clarification of fiduciary duty would “remove barriers” to investing in productive assets and would not have constituted mandation.  
 

“There are no winners here. Pension savers and the wider UK economy will lose out if a small number of peers are able to stop the much needed and long overdue clarification from going ahead,” he said.  
 

Hildyard welcomes the government's intention to give trustees confidence but said that “this cannot be fulfilled without statutory underpinning”.  
 

 

During the debate, Baroness Helene Hayman, a crossbencher, said she was “very upset” that peers had decided to vote against the change after “we managed to thrash out an amendment” with the minister. She had previously put an amendment forward on a cross-party basis. 
 

“My understanding up to this morning was that the concerns that existed there [among LibDem peers] related to the fact that my amendment had in some way been watered down and was less tough, putting less into statute and giving more reassurance to those who were concerned about overinvolvement. The minister set out very clearly that this was not a case of overinvolvement; it is certainly not a case of mandation,” she said.
  

But Baroness Deborah Stedman-Scott suggested that the risk of potential government overreach was a key concern.
  

“These amendments risk opening the door to mandation by the backdoor, and that is something we cannot support,” the Tory peer said. “If the government are given the power to define what is in the members’ best interest, what is to prevent that definition shifting over time to reflect political priorities?”
  

Fears of the state’s arm reaching into trustee decision making were also at the centre of a heated debate about mandation powers on 19 March, when the House of Lords defeated the government on creating these powers. Ministers are, however, expected to put them back into the bill with the help of a large majority in the Commons, but limiting what can be mandated to the framework set out by the Mansion House Accord. 
 

The Department for Work and Pensions’ minister in the Upper House, Baroness Maeve Sherlock, said voting the amendment on fiduciary duty guidance down would be “a major mistake”. 
  

“The aim of the guidance is to clarify, not control,” she said, adding that guidance cannot change or override the law and that trustees can depart from the guidance if they explain their reasoning.