I think we will see the last days of the debate over the Pension Schemes Bill as some of the maddest pensions have seen this century.
I had supported Baroness Altmann’s view that schemes that don’t invest more of our money into the UK should lose their tax relief (tax relief was granted so that pensions helped tax-payers in among other things growing our economy through investment).
But now the good Baroness seems to have swung through 180% and joined those who are calling for the scrapping of the mandation clause allowing Governments to enforce investment as it sees fit.
At the recent Pensions UK Conference, I suggested that Tom McPhail, who seems to share the views of Ros Altmann, be made into a Shadow Pensions Minister by being made a peer! Ros Altmann is a former Pensions Minister who now sits in the House of Lords.
The proposal is an amendment from the Conservatives to scrap mandation and is as likely to find favour with a Labour Government as the changes proposed to the limits on salary sacrifice
This is the argument for them doing so – set in the Daily Mail
ROS ALTMANN: Government is seizing ‘Henry VIII’ powers to dictate how pension savers’ money is invested
The Government wants unlimited powers to put workers’ pension funds into high-risk investments in private equity, private credit and maybe even ministers’ ‘pet projects’.
The ‘Henry VIII clause’ of the Pension Schemes Bill currently going through the House of Lords contains astonishing provisions.
They would enable Ministers to issue diktats to pension schemes that they must invest in whatever projects or assets – and in whatever quantities – the Government decides.
These dangerous proposals need to be amended to protect ordinary workers’ pensions – Government does not know best how to invest.
Ros Altmann: House of Lords will try to remove mandation power altogether, or water it down to just Mansion House Accord limits
The policy known as ‘mandation‘ is supposedly based on the Mansion House Accord, but could turn what is meant to be a voluntary agreement into compulsory directions.
Most major auto-enrolment pension providers have agreed with the Government that they will invest at least 10 per cent of their workplace ‘default‘ funds in high-risk private or unlisted assets by 2030 with half, at least 5 per cent of the funds, in the UK.
These assets include private equity, private credit, AIM shares, Acquis shares, venture capital and interests in land.
Ordinary workers’ pensions will be affected
The vast majority of staff’s pension savings are in the ‘default’ funds that would be affected, since most people do not opt to actively move their money into other investment funds within their schemes.
So, this could potentially affect many people’s eventual retirement pots.
Ministers insist clause 40 of the Pension Schemes Bill, which would enshrine into law the kind of sweeping might the monarch Henry VIII would have wielded, merely involves ‘backstop‘ powers.
They say the powers will only be used to force schemes to invest as Government dictates if they don’t do it themselves, so we don’t need to worry about the Henry VIII clause.
But that is precisely the worry. Once the measure is in primary legislation, the Government could use it as it wishes and any assurances about not intending to use it may prove worthless.
Meanwhile, the pension providers’ investment intentions are dependent on the Government itself complying with several requirements.
The voluntary investment commitments in the Mansion House Accord depend on Government fulfilling certain obligations, such as ensuring pension funds have a good pipeline of investible projects.
It must also move the emphasis in ‘value for money’ rules away from lower costs to better value – because cheap does not necessarily mean good – and encourage larger-scale pension funds with more capacity to invest in higher-risk projects.
In practice, however, even if the Government does not deliver on its own commitments, the new legislation could just force the funds to invest in any assets it tells them to.
These could be projects that pension trustees would not wish to back on purely economic or financial grounds, but as this is written into law they may be unable to refuse.
Manion House Accord: Major pension firms have agreed to invest in high-risk private or unlisted assets – but the deal struck with the Government is voluntary at present
Can this power grab be stopped?
There has been significant Parliamentary and industry pushback against the Pension Schemes Bill’s extensive Henry VIII powers.
House of Lords will try to amend it to either remove this mandation power altogether, or water it down to just Mansion House Accord limits
If we don’t succeed, the Bill will give Ministers unlimited powers. They could set the amount or type of assets pension funds have to buy, thereby shifting pension fund investment focus away from higher returns towards a political agenda.
Pensions UK, the Association of British Insurers and other industry bodies are all concerned about the broad wording of the provision, which could go far beyond the supposedly intended scope.
Ideally this clause should be removed entirely. At the very least it should be heavily restricted with proper safeguards against ministerial overreach.
Pension Schemes Bill would enshrine into law the kind of sweeping might the monarch Henry VIII would have wielded, says Ros Altmann
Government has already made a serious investment blunder
The Government has already shown it cannot be trusted with the power to dictate investment decisions.
It is proposing to prevent pension firms from using investment trusts and REITs – real estate investment trusts, which invest in property – to fulfil the obligations to invest at least 10 per cent in high-risk, illiquid assets under the Mansion House Accord.
Ministers have specifically stated, without any coherent justification, that pension funds can only use either unlisted Long-Term Asset Funds -which are ‘open-ended’ structures, that issue new shares and allow inflows and outflows far more suited to liquid assets – or direct investments in the relevant assets.
Investment trusts or REITs are banned even if they hold the desired private assets of exactly the type which the Government wants pension funds to support.
That is despite them being far more suited to investing in illiquid assets because they are ‘closed-ended’, meaning they have a fixed number of shares that can be easily bought or sold without the fund manager having to change the portfolio of assets.
Closed-ended listed investment companies have built up long-standing experience in managing such assets, and offer pension funds which do not have such expertise the opportunity of investing in ready-made, expertly managed diversified portfolios.
Specifically excluding the use of these more fitting closed-ended listed companies reveals that Government is unqualified to decide which assets pension funds must invest in.
How do I stop my pension being used to promote economic growth – I think Rachel Reeves is ignoring the risks
Risks of these dangerous new powers
The new ‘mandation’ powers the Government is giving itself could create asset bubbles and put pension savings at risk.
A prime concern is that forcing pension funds to invest in potentially underperforming assets – such as HS2-type projects or possibly overvalued private equity and private credit – could mean lower returns and lower pensions in future for millions of workers.
Pension funds could be forced to invest into a limited pool of UK projects, which could drive up asset prices, creating market bubbles and exacerbating risk.
Excluding the option of using investment trusts would restrict the investment options even further, making market distortions worse.
All this could further damage members’ pension prospects.
Here is the current state of play in the Upper House (the Lords)
Peers in the House of Lords are attempting to remove a Labour Govt clause giving Ministers power to direct how private pension assets are allocated. “This could undermine confidence in the whole automatic enrolment pension system,” said Baroness Stedman-Scott. https://t.co/S7LY1iMJLg
— Josephine Cumbo (@JosephineCumbo) March 12, 2026
