The House of Lords on Monday insisted on removing investment mandation powers from the pension schemes bill, as well as creating exemptions to the scale requirements and a review of the long-term sustainability of unfunded public service schemes. MPs will reconsider the Lords’ changes on Wednesday.  

The bill is currently in the ping pong stage, where it changes rapidly between the two houses. Peers are digging their heels in on investment mandation, scale exemptions and public service pensions, but have not insisted on extending the dormancy of small pots from 12 to 36 months, or on prohibiting regulations that dictate the type or location of investments for the Local Government Pension Scheme.  

Several peers have condemned the government’s attempt to give ministers the power to force investment in private market assets.  

Baroness Sharon Bowles said there are two problems – mandation itself, and the "discriminatory definition of investment vehicles that excludes listed investment companies”, which she said were endorsed by the Productive Finance Working Group.  

“Both defects are fundamental,” said Bowles. She said rather than the mandation clause giving confidence it will do the opposite, warning that “wider market effects” have been overlooked.  

“We are absolutely opposed to this power in principle and in practice,” said Conservative peer Baroness Deborah Stedman-Scott, arguing that an investment that has to be forced by the government is not in the interest of savers.  

There is nothing in the bill that prevents any future government from mandating investment in a specific asset class or even asset, said Lord Vaux, citing cryptocurrency. He also noted that one of the asset classes the government gives as examples – private debt – has made negative headlines recently, with Jamie Dimon, chair and chief executive of JPMorgan, warning last October of more “cockroaches” in the sector.  

The Department for Work and Pensions’ minister in the upper house, Baroness Maeve Sherlock, replied that nothing in the bill would disapply trustees’ fiduciary duty. She reiterated that the government does not intend to use the power and that even if it did, trustees could invoke a savers’ interest test. She accused providers of waiting for someone else to be the first mover, arguing that mandation would give confidence that the rest of the market moves as well.  

Her reassurances fell on deaf ears, with 219 peers voting for Baroness Bowles’ motion and 144 against.  

Peers also overruled the government on exemptions to the £25bn scale requirement to be introduced for multi-employer DC defaults, based on performance, innovation and competition, even though Baroness Sherlock said that “both regulators expressed strong concerns” about the practicality of such exemptions. 

She claimed pension providers would be “bogged down in the courts for years” because the criteria for exemption are ambiguous. 

Baroness Lucy Neville-Rolfe's amendment to demand a review of unfunded public service pensions regarding sustainability, intergenerational fairness and accounting treatment was also supported by the Lords. 

Baroness Neville-Rolfe said increased contributions make things look better in the short term but argued that this is a “mirage” because higher pensions will need to be paid later. Pension costs are also not taken sufficiently into consideration when adding to the workforce, she said. 

Baroness Sherlock said that “the Treasury is exploring options to present pension liabilities on a constant basis”, which would be supplementary only and not affect the underlying liabilities, “but it would help to add an extra level of clarity”. 

The minister also revealed that the intention is that pensions dashboards will be available before small pots consolidation comes into force. This is planned for 2030 under the current roadmap.