In a heated debate in the House of Commons on Wednesday, the pensions minister responded to criticism by the shadow pensions minister saying the opposition had lobbied him to mandate private market investments. MPs have voted investment mandation powers back into the pension schemes bill as expected. The changes will be considered by the House of Lords on Monday.

The debate featured some impassioned speeches even at this late stage of the bill. Shadow pensions minister Helen Whately argued that the government was using pension savings as a piggy bank for itself, making the accusation that “socialists always run out of other people’s money”.  

The MP for Faversham and Mid Kent then urged the pensions minister to remove this mandation power, saying modifying it does not address the issue of state intervention. “Listen to the industry, listen to the other place and listen to us,” she said. “There is a strong consensus behind this bill, there is much to like in it, and there is still time to fix it.”  

Her party colleague Alison Griffiths wondered: “If they are only backstop powers, why fight so hard to keep them?”  

Similarly, the Liberal Democrats’ Steve Darling said a well functioning economy was based on a lack of state interference, adding that it would be “feckless and dangerous” to go ahead with giving ministers a say over how people’s pension savings are invested. 

The pensions minister responded with a counterattack, saying the Conservatives had supported and “in a less bonkers phase of life, nodded the bill through”. He accused the opposition of scaremongering savers after telling the government that they would not vote against the bill.  

Torsten Bell then made an extraordinary revelation, saying that, mainly in private but not just, opposition politicians had asked him to mandate: “Who were the politicians that have lobbied me to actually mandate pension scheme investment decisions? Tories.”  

John Glen MP, parliamentary private secretary to Kemi Badenoch, called Bell to Westminster Hall last November “because he was worried about what he called my effort to hold back mandation”, Bell said.  

During the November debate, Glen said he had “an anxiety that in a legitimate effort to hold back from mandation, there is a gap in thinking about how we open up the public’s understanding and imagination regarding where they can invest” and urged the minister “to move forward with some tougher rules around how people verify the choices that they are making so that the powerful voices who run the pensions industry do not default to saying, 'We know best; we have fiduciary duty, and we will do it better than you could dream of doing'.”  

That some Conservative MPs linked to the City are in favour of mandation may not be surprising – intense debate took place in May and June 2023 after then lord mayor of London Nicholas Lyons – chair of Standard Life – called for a 5% forced investment in the UK from DC schemes. Former City minister Andrew Griffith doubled down by declining to rule out overriding trustees’ fiduciary duty. The 2023 discussion about state interference only subsided when then chancellor Jeremy Hunt decided to step in saying the government would, after all, not direct where private sector money goes.   

While private market managers might welcome mandation, the pensions industry continues to be underwhelmed by the prospect of the state bluntly telling it where to invest for savers. 

Matt Tickle, chief investment officer at consultancy Barnett Waddingham, said: "We are disappointed, if not surprised, that the Lords' amendments have not been retained. Whilst the revised wording is a small move in the right direction, it does not fundamentally change our view. Placing mandation powers on the statute book is not, in our opinion, in the best interests of members or the wider economy. Saver outcomes must always come first, and it is important that trustees are able to fulfil their fiduciary duties, protecting members' retirement savings.” 

Tickle added: "We have never felt the economic argument for mandation stacked up. The Mansion House Accord has demonstrated that industry can commit meaningfully to UK and infrastructure investment on a voluntary basis, and we believe that remains the right path. Our support for the government's ambition to grow the supply of infrastructure assets in the UK is unchanged, and we recognise the genuine effort being made to achieve that. We hope to see that progress continue.” 

Similarly, Lisa Picardo, chief business officer UK of provider PensionBee, also called the vote “disappointing” that is “bypassing overwhelming industry opposition to this reserve power”. 

“With power comes great responsibility - but this mandation clause creates asymmetry between who wields the power, and who takes responsibility,” she said. 

“Ultimately it’s consumers that will have to bear the consequences if the current government’s instinct on returns from private market assets does not turn out to be correct over time,” Picardo added. “If private markets and UK assets genuinely deliver strong returns, they will attract pension investment without the need for compulsion. The government should be more focused on building the right conditions for healthier capital markets, and greater transparency in valuation and reporting on private asset classes.” 

The Pensions Management Institute “remains fundamentally opposed to the principle of a reserve investment power and its potential to impede fiduciary duties”, said chief strategy officer Helen Forrest Hall, although “we strongly support the wider pension schemes bill and its objectives to deliver better outcomes for savers”.     

Forrest Hall said the PMI is concerned that this power will be in legislation until at least the end of 2035 and is calling for the sunset clause to be brought forward. 

“We would also now like to see more granular details on how the power would be applied, particularly as to what a 'UK-specific description' means in practice, and an update on the Mansion House Accord investment opportunities the government has promised,” she added.  

Pensions UK chief executive Julian Mund previously said the association welcomed the limits the government has put on the powers but that it “remains opposed in principle to the government directing how DC schemes invest savers’ money, and concerned by the precedent set by the inclusion of any reserve power”. Pensions UK also wants to see the clause come to an end before 2035. 

As well as putting reserve mandation powers back into the bill with certain percentage limits, the Commons voted down creating further exemptions from the DC scale requirement on the basis of innovation, competition or members’ interests. They also rejected prohibiting LGPS regulations that would force investments in particular assets or locations, with Bell saying that the 2020 Supreme Court ruling prevented such regulations being made without primary legislation.  

An affordability review of unfunded public sector schemes, voted in by the Lords, was equally rejected, with Labour ministers saying that such analysis is already regularly carried out by the Office for Budget Responsibility. 

The bill returns to the House of Lords on Monday.