Ministers are set to go toe-to-toe with the House of Lords over a plan to grant them powers to force pension funds into private assets and UK companies.
Government officials said ministers would make concessions to try and get the measure through the upper house, which voted last week to remove a “reserve power” allowing ministers to mandate asset allocation targets, according to reports in the Financial Times.
The proposal was rejected by peers following a fierce debate in the house and criticism from both the Conservatives and Liberal Democrats.
But work and pensions secretary Pat McFadden and chancellor Rachel Reeves are determined to keep the “backstop” power in order to ensure funds honour their promises to invest more in specific assets to revitalise the economy.
Proposed compromise
Under the proposed compromise, ministers are expected after the Easter break to write a clause into the pension schemes bill setting a limit on the reserve power to reassure peers and industry, government officials said.
The fresh clause will say that ministers will not be able to force funds to invest more than 10 per cent of their assets in private markets, at least half of which will be invested in the UK.
The current drafted bill has no cap, with the limit mirroring a voluntary target agreed by the industry last year in the Mansion House Accord.
A senior Labour figure briefed on the plan said: “The idea is to clarify that this is the maximum and we would not go further than what they have already voluntarily agreed to do.
“We are clear that we want to keep this power in reserve.”
The clause is anticipated to be added to the bill when it returns to the Commons, indicating a battle of wills between MPs and peers.
Helen Whately, shadow work and pensions secretary, said: “The principle at stake is simple, pensions belong to savers not the state.
“Ministers should heed their resounding defeat in the Lords, if not the warning from across the pensions sector.”
Whately added that the Conservatives would “remove mandation entirely”, while Baroness Bowles who led the opposition in the upper house added “we think any mandation is bad news”.
Torsten Bell heralded the retreat at a conference in Edinburgh earlier this month when he said the “only purpose” of the reserve power was to backstop the Mansion House Accord.
House of Lords clash
The upper house voted against the bill after ministers faced intense scrutiny over the details of the potential pension system overhaul.
Conservative member Baroness Stedman-Scott called out the power, arguing it gave the government a “sweeping authority”.
She said: “The government says this power is merely a backstop to the Mansion House Accord, but this is a gross misrepresentation.
“The pension schemes bill goes far beyond that and gives ministers sweeping authority to mandate pension investments to whatever level they choose”.
Others within the pension industry have voiced frustration over the reserve power, warning the government of the potential for misuse and instead urging the government to focus on building a pipeline of investment opportunities in high-growth areas.
UK sustainable investment and finance association chief executive, James Alexander, said: “The House of Lords’ decision to strike down proposed mandation powers in the Pension Schemes Bill should prompt careful reflection within government.
“We would now urge ministers to give serious consideration to amendments that remove the ‘reserve power’ entirely, heeding warnings from the pensions industry and wider groups about its potential misuse.
“We have long argued that forcing pension schemes to invest in the UK runs the risk of distorting markets and creating asset bubbles. It could crucially lead to lower returns for savers, at a time when shortfalls in retirement savings are threatening living standards in later life.”
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