Amendment proposed (this day): 247, in clause 9, page 8, line 23, at end insert—

“(aa) prohibiting the making of a payment unless the scheme’s assets have exceeded a buyout valuation,”.—

This amendment requires that surplus extraction is only permitted once buyout funding levels are achieved.

Question again proposed, That the amendment be made.

I remind the Committee that with this we are discussing the following:

Amendment 260, in Clause 9, page 8, line 30, at end insert—

“(e) requiring the trustees to provide a prescribed notification, as set out in (f) below, with the members of the scheme (or their representatives) not less than 60 days before making any payment under this section;

(f) the prescribed notification should include—

(i) the proposed amount of surplus to be paid to the employer,

(ii) the reasons for the proposed payment,

(iii) the impact on member benefits,

(iv) the scheme’s funding position after the proposed payment, and

(v) how members may make representations regarding the proposal;

(g) requiring the trustees to have regard to any representations made by members or their representatives having received the prescribed notification.”

This amendment would require trustees to notify members at least 60 days before making surplus payments to employers. It ensures members receive full information about proposed surplus payments, enabling informed participation.

Amendment 265, in clause 9, page 8, line 30, at end insert——

“(e) requiring the trustees to provide a prescribed notification to members of the scheme, or members’ representatives, not less than 60 days before making any payment under this section,

(f) requiring the prescribed notification under subsection (e) include—

(i) the proposed amount of surplus to be paid to the employer,

(ii) the reasons for the proposed payment,

(iii) the impact on member benefits,

(iv) the scheme's funding position after the proposed payment,

(v) how members may make representations regarding the proposal, and

(g) requiring the trustees to have regard to any representations made by members or their representatives having received the prescribed notification under subsection (e).”

This amendment would require trustees to notify members at least 60 days before making surplus payments to employers.

Amendment 267, in clause 9, page 8, line 30, at end insert—

“(e) requiring that, where the scheme actuary certifies under subsection (a) that the scheme’s assets exceed the cost of securing each member’s accrued rights with an authorised insurer for a continuous period of at least six months, the trustees must first secure a full buy-out of those rights before any payment of surplus may be made to the employer or any other person, and

(f) requiring that subsection (e) does not apply if the scheme actuary certifies that any surplus extraction would, after the extraction, still leave the scheme’s assets exceeding the cost of securing each member’s accrued rights with an authorised insurer.”

This amendment inserts a requirement to ensure that surplus extraction prior to a buyout does not adversely impact the scheme’s ability to reach buy-out.

Amendment 261, in clause 9, page 8, line 36, at end insert

“and including confirmation that the proposed payment (surplus access) will not adversely impact members’ benefits and that the prescribed notification has been completed in accordance with regulations made under subsection (2A).”

This amendment would aim to strengthen an actuary's role and oversight of schemes accessing surplus, by requiring confirmation that member notification has occurred before certifying surplus payments.

Does Mr Darling wish to respond further in this debate?

I am happy for the Committee to proceed.

Sir Christopher, I am happy to proceed in order to get things moving.

Question put, That the amendment be made.

The Committee divided: Ayes 4, Noes 9.

Question accordingly negatived.

Amendment proposed: 260, in clause 9, page 8, line 30, at end insert—

“(e) requiring the trustees to provide a prescribed notification, as set out in (f) below, with the members of the scheme (or their representatives) not less than 60 days before making any payment under this section;

(f) the prescribed notification should include—

(i) the proposed amount of surplus to be paid to the employer,

(ii) the reasons for the proposed payment,

(iii) the impact on member benefits,

(iv) the scheme’s funding position after the proposed payment, and

(v) how members may make representations regarding the proposal;

(g) requiring the trustees to have regard to any representations made by members or their representatives having received the prescribed notification.”—

This amendment would require trustees to notify members at least 60 days before making surplus payments to employers. It ensures members receive full information about proposed surplus payments, enabling informed participation.

Question put, That the amendment be made.

The Committee divided: Ayes 6, Noes 9.

Question accordingly negatived.

I beg to move Amendment 3, in Clause 9, page 9, line 4, at end insert—

“(e) about the proportion of any surplus that may be allocated, or the manner in which it may be determined, for the purpose of contributing to the provision of free, impartial pension advice and guidance services for scheme members.”

This amendment enables a proportion of surplus funds to be used to fund free pension advice.

The purpose of the amendment is to allow a proportion of pension scheme surplus funds to be allocated to funding free, impartial pension advice and guidance services for members. In my former life in advertising, it was sometimes my job to help people to understand their pension options so that they could make the right choices, and I can tell the Committee it was not an easy task. Pensions are complicated, and far too many people have no idea at all what is in store for them, and therefore do not take advice. We argue that rectifying this gap is the key task that at the moment is underserved by the Bill. There are proposals such as the pensions dashboard that certainly help, but they are by no means sufficient. More action needs to be taken, and that is the essence of the amendment.

Without proper advice, members risk making poor financial decisions, such as taking all their lump sum and getting taxed unnecessarily, which could severely damage their long-term security. Free, impartial advice is essential to level the playing field between those who are more informed and perhaps have higher incomes, and those who are not. The details of our revised proposals are laid out in new clause 1, which, slightly inconveniently, will be discussed later in the proceedings; this amendment is about the funding for that measure. We propose two stages of advice: at age 40, which is a critical moment for all midlife planning and pension consolidation, and again within six years of expected retirement, when the emphasis shifts more to decisions about drawdown, annuities and retirement income options.

The first question that is always asked when any extension to a Government service is proposed is, “How will we pay for it?”. This measure is a highly relevant, targeted solution to that question, made possible by accessing surplus funds. We have general agreement, I think, that surpluses in pension schemes should not be allowed to sit idle or be seen simply as windfall funds, but we have less clarity and agreement on what exactly is the best use for them. I would argue that the measure we propose, employing a small proportion of the surplus to fund member advice, is at once a highly relevant targeted use for the funds, and something that will have a disproportionately large impact on pension adequacy, which is of course a matter of great concern to the Minister outside this Bill.

The amendment does not mandate a fixed proportion; it simply gives the Secretary of State powers to determine what proportion he or she thinks should be used. It creates flexibility and safeguards, so that the balance between scheme health and member benefit can be properly managed. Importantly, funding advice from surpluses would reduce the need for members to pay out of their own pockets; for many, the cost is prohibitive, so it simply does not happen. A further benefit is that it would build trust among the public that schemes are actively supporting member outcomes beyond just the pension pot itself.

To summarise, the amendment is designed to ensure that pension surpluses, when they arise, are used to strengthen member outcomes. Advice and guidance are just as important as the pension itself in ensuring good retirement outcomes. The amendment is a practical, fair and member-focused way of improving the system.

As we have heard, the Amendment authorises the use of surplus pension funds to contribute to the provision of free, impartial pension advice and guidance services to scheme members. The age of 40 is very important, and I hope that the Minister, on his 42nd birthday—

Forty-third.

Forty-third! He looks 28. None the less, I hope he is getting plenty of pension advice; who knows when he may need it?

This is a very good provision. The more informed people are about their retirement opportunities, the better. I suppose I have to declare a bit of an interest, inasmuch as I will retire in five years’ time, hopefully. It is incredibly important that people are well prepared for their retirement, and the more information a member of a pension fund has, the better it is. If the Amendment is pressed to a vote, we will support it wholeheartedly.

I am in massive agreement with putting more investment into the provision of advice. On Tuesday, we heard the terrible stats that only 9% of people actually get advice on their pension from a financial adviser. Yet this Amendment is the wrong vehicle to achieve that, given that it is looking purely at DB surpluses.

My understanding is that people who have DC pensions are much more likely to need advice than those who are on DB pensions, because that someone with a DC pension cannot tell how much they will get before they actually apply for the annuities when they retire. Their life circumstances may change between the age of 40 and hitting retirement. My understanding is that those on DB pensions have a pretty clear idea of what they are getting on a weekly, monthly or annual basis, in addition to a lump sum that they may be awarded as part of that DB pension scheme. Using the surplus created in DB schemes to fund advice for DC scheme participants would not be in the best interests of the scheme members.

I agree that we need more advice; I think that the proposal made in new Clause 1 for earlier advice is incredibly important, because by the time someone gets to the age of 50-plus or very close to retirement, they do not have time to fix any issues. I would love to see people, when they are first auto-enrolled, getting advice on how much pension they are likely to get from whatever percentage of pay is put in, what a top-up looks like and how putting money into their pension as early as possible gives them the best possible outcomes in retirement, rather than panicking at the last possible moment to try to increase it.

On the mid-life MOT, free advice is already available for people at the age of 50, but it is drastically under-utilised. The Government could move in the direction of ensuring that when people get their bowel cancer check pack through the post, they also get a date and a time for an appointment with the Pensions Advisory Service, so that they do not have to proactively make it themselves. That would make a massive difference.

Successive Governments have believed that doing that would cause too much uptake and there would not be capacity to provide that service, but as we come to the generation of people who have been auto-enrolled hitting 50, when they are due that mid-life MOT, the benefits would be so great and would provide prospective pensioners with clarity about how much they could get. They could be told that taking the entire thing in cash and putting a chunk of it into a bank account is a truly terrible idea—we know that far too many people do that. I am in favour of anything that the Government can do to expand the free advice service that is there already, but I think that the funding vehicle proposed in amendment 3 is not the right way to go about it. I would like the Government to put more money into it, and many more people getting the advice that they need.

The guidance and targeted support mentioned on Tuesday are incredibly important, increasingly so as we see the trend away from DB schemes towards DC schemes. I was looking at my family’s personal pension the other day, and the amount of money in the DC pot. I do not have the faintest clue what it means. I know something about pensions, but being able to translate that large figure into a monthly amount is simply impossible until it is time to apply for the annuity, when we get the understanding of what our life circumstances look like.

I would like changes to be made to the advice given. I do not think that we are in the right position. I wonder if the review will take some of this into account. On pension sufficiency, as the hon. Member for Mid Leicestershire said, people being better informed and more engaged with their pensions is an incredibly positive thing, but we are not there yet. More needs to be done to encourage people down that route.

I want to reiterate a lot of the points mentioned by the hon. Member for Aberdeen North. Financial education is key to unlocking many of the challenges that we face in adulthood, whether budgeting, debt management, saving or planning for retirement. I introduced a ten-minute rule Bill, the Financial Education Bill, earlier this year; I know we already have an element of it in secondary schools, but we need to go further as a country and ensure that everyone, from the very young upwards, has that education to inform the key decisions in our lives.

I take the hon. Member’s point on DB schemes funding those seeking advice for DC schemes, but it is often the case that members have pensions in both DB and DC schemes: people move quite fluidly from a job in the public sector to one in the private sector, and will inevitably have membership in both DB and DC schemes. The Bill would benefit from the Amendment proposed by the Liberal Democrats.

I also take the hon. Member’s point on the need for better engagement by employers. I know some large companies offer employees mid-life MOTs on financial education and management. Certainly, FTSE 100 companies that I have worked for offer employees that kind of support as they approach retirement. I am sympathetic to new Clause 1, which amendment 3 is connected to, because it is essential that as we get older and plan for retirement, we are fully informed on those decisions. I will support the Liberal Democrat amendment.

In line with what has been said already, my thought is that plenty of financial education is a good thing; to say that some is worth pursuing and some is not seems a bit at odds with what we have been debating. I echo what colleagues have said about workers who come from a DC scheme into a DB scheme and need that education. I am sure there are many new Members who are in that position—I cannot be the only person who is—and, while I am fortunate enough to have taken pension advice throughout my career, I know many people have not.

For me, this is not something that is mandated, but a suggestion for something that could be done. Providing another alternative and another opportunity for people to receive financial education—particularly people in their 20s, 30s and 40s who have not had it at school, because it was not part of the curriculum at that point—is something we should welcome and not restrict.

The Amendment seems to me perfectly sensible. I appreciate why some people might think it does not go far enough, or that the matter will be addressed later in the reporting back that the Government will do on pensions in general, but the emphasis on people around the age of 40 is particularly important, because they still have a good 20 years—or 30 years, potentially; who knows what will come forward from the Government?—to work and to ensure that they maximise returns to achieve adequacy. Having an additional vehicle to do that seems to me a sensible thing, and I put on record my support in the same way that my hon. Friend the Member for Mid Leicestershire has.

I should start by saying that I do not recognise the purist approach that we have heard from the hon. Member for Aberdeen North. This is an issue close to my heart, because my father, having seen the poverty that his father was in, saved significantly in his private pension scheme as a lorry driver. Sadly, however, he was extremely poorly advised, and as he approached retirement he put thousands and thousands of pounds into equities; then, in the late 1980s, there was a stock market crash. He might as well have burned half of his money. The further we drive the health of the pension industry, the better, and particularly knowledge for those who may not be very much in the financial world.

We heard in evidence from NEST that only 40% of people have even registered online to know what their pension is doing. For people for whom the financial world is a complete challenge—and even for many of us in this room, getting our head around it totally is a bit of a challenge—it is essential that we use every possible lever to make sure that quality advice is available. As Liberal Democrats, we will unashamedly use every opportunity in the Bill to provide high levels of education for those who are in receipt of pensions and to give them as much wind in their sails as possible.

I shall give a short speech, because there is a worrying habit developing of the hon. Member for Aberdeen North giving the Government Front-Bench speech for me. I should encourage that as we go on—she might be slightly traumatised by that, but we are where we are. Everybody in this room will agree on the importance of the principle that has been highlighted, and we have just heard a powerful point exactly along those lines.

Although the Government understand the intent behind Amendment 3, there are two reasons why we will not support it. The first is a point of principle, which I have already set out: it is for trustees, not the Government, to decide how surpluses that benefit members should take place. We discussed the issue of discretionary benefits just now.

The second reason is less a point of principle and more a matter of reality. The amendment would provide advice only to existing members of specific schemes. I think we all agree, particularly in the light of the point made by the hon. Member for Aberdeen North, that the main problems are about the defined-contribution space and people coming up towards retirement. Lots of the people who are in schemes who would be coming forward for surplus release are already drawing down a very well-defined pension income.

It is not the ideal way to focus on the particular problem that we all agree exists, but we completely agree that robust guidance that assures that everyone has access to free and impartial advice is very important. That is the job of the Money and Pensions Service, but I completely hear what has been said about how it needs to go further. I am grateful for hon. Members’ contributions, but I urge the hon. Member for Horsham to withdraw his amendment.

I thank the Minister for his reply, and I thank hon. Members for their contributions. One thing we all absolutely agree on is the importance and centrality of this issue. If there is one area in which I feel the Bill could have gone further, it is this one.

It is a scary thing to look to the future and see all the trends in where we are heading with pension adequacy. The number of people who will have zero or a very small pension is deeply frightening, particularly when we lay alongside that the fact that many of those people will not own their own house and will still be paying private market rent. The state pension is not designed for that.

It is a crucial issue. I appreciate both the Minister’s objection in principle and the practical objections from him and the hon. Member for Aberdeen North, but we will still push the Amendment to a vote. That is more to lay a marker than anything else; I appreciate that our chances of winning the vote are small. We want to lay as much emphasis on the issue as possible. Whether or not it ends up as part of the Bill, perhaps under new Clause 1, we want it highlighted.

Question put, That the amendment be made.

The Committee divided: Ayes 5, Noes 11.

Question accordingly negatived.

I beg to move Amendment 264, in Clause 9, page 9, line 4, at end insert—

“(e) Where regulations under subsection (2A) lower the funding threshold for a surplus payment to below the full buy-out funding level, the Secretary of State must—

(i) conduct an assessment setting out—

(A) prescribed stress scenarios and their impact on funding,

(B) a maximum permissible extraction percentage for each scenario, and

(C) contingencies to restore funding;

(ii) consult the Pensions Regulator, the FCA, and such actuarial bodies as may be prescribed; and

(iii) lay a report of the assessment before Parliament.”

This amendment requires the Secretary of State to conduct an assessment when the DWP calibrates any extraction threshold below buy-out.

With this it will be convenient to discuss Amendment 258, in Clause 9, page 9, line 21, leave out

“in subsection (2A), after ‘section’ insert ‘37(2A),’” and insert

“in subsection (2), after ‘virtue of’ insert ‘(za) section 37(2A)’”.

This amendment would make all regulations on DB surplus extraction subject to the affirmative procedure all times they were made rather than just after first use.

Amendment 264 would provide a backstop and a check where there are potential extractions and buy-outs. It would give an opportunity for the Secretary of State to cast an eye over the process when the DWP does an assessment. It goes back to safeguarding: as I am sure this Committee will discuss repeatedly, we need to ensure that we have investors’ and beneficiaries’ best interests at heart. I hope that the Secretary of State will take the proposal at face value, as an appropriate guardrail, and I look forward to its endorsement.

Conservative Amendment 258 would ensure that all regulations made under proposed new section 37(2A) of the Pensions Act 1995, which governs surplus payments from defined-benefit pension schemes, are subject to the affirmative procedure always, not just the first time that they are made. That would give Parliament ongoing oversight and scrutiny of any future regulations in the area. Without the amendment, regulations on defined-benefit surplus extraction would not consistently require parliamentary approval. That would potentially lead to insufficient scrutiny.

The amendment aims to provide better parliamentary control over regulations as they are introduced. The key worry is the risk that the Secretary of State, whoever he or she may be, might use these powers to allow the payment of a surplus at funding levels below buy-out standards at some point in future, which could jeopardise scheme security and could happen without parliamentary scrutiny. The amendment is about improving the transparency and accountability of surplus extraction regulations for DB pension schemes, ensuring that Parliament maintains consistent oversight and guarding against premature surplus extractions that might undermine scheme funding security.

The Liberal Democrat and Conservative amendments are very different methods to achieve a similar outcome. Conservative Amendment 258 is a bit wider, in the sense that it would require the affirmative procedure for a wider range of things, but both parties are concerned about the possibility of regulations allowing a surplus below the buy-out threshold level.

I think the amendments are reasonable asks. I am generally in the habit of supporting more scrutiny of regulations; upgrading the requirements for regulations from the negative to the affirmative procedure is very much in my wheelhouse, given that it is so difficult for Parliament to oppose regulations made under the negative procedure unless the Leader of the Opposition puts their name to a motion praying against them. In practice, that very, very rarely happens. Given that both amendments are asking for relatively small changes to ensure increased parliamentary scrutiny, particularly where the threshold drops below the buy-out level, I think that they are not unreasonable. I am happy to support them both.

I thank the hon. Members for Torbay and for Wyre Forest for their amendments. On Amendment 264, I hope that I have already reassured hon. Members that there are many safeguards built into the policy for surplus release, both at an individual scheme level and at a wider policy level, including the ultimate control of trustees, the need for prudent funding to be maintained and the actuarial certification.

The Government’s view is that it is not for the Secretary of State to assess every single scheme in the way that the amendment intends. To offer some more reassurance, however, TPR and the PPF have carried out scenario testing in this area; we heard the PPF chief executive’s reassurance in oral evidence on Tuesday. In that regard, I do not think the amendment is necessary. It would also involve the Secretary of State holding a lot of evidence about every single DB scheme in the country, which I do not think is a good use of resources.

The point is about the regulations on the surplus and The Times at which schemes can pay it. It is not about looking at each individual scheme; it is about looking at the level that is set in the regulations. Much as I am sure that the Minister is having a lovely birthday, he would probably admit that he is not going to be the Pensions Minister in perpetuity. It is unlikely that he will still be the Pensions Minister in 50 years’ time. He may therefore not have control of these regulations. This is about putting guardrails in place so that, no matter who is in government, the level cannot be reduced below the full buy-out funding level.

I think I am grateful to the hon. Lady for her attempt to fire me. To clarify, carrying out the kind of prescribed stress scenarios and assessments set out in the Amendment would require the Department for Work and Pensions to examine the DB landscape. In this specific area, that is the role of TPR and the PPF.

I turn to amendment 258. The first regulations on surplus will be subject to the affirmative procedure, for exactly the reasons that have been set out, and exactly because at that point they will be new but also comprehensive. As with every other pensions Bill, what we do not want to see is the affirmative procedure being used for small, technical changes that come to those regulations in the years that follow. However, our approach does allow for the necessary debate when those regulations are made. On that basis, I urge hon. Members to support the Bill as drafted.

I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Amendment proposed: 258, in clause 9, page 9, line 21, leave out

“in subsection (2A), after ‘section’ insert ‘37(2A),’”

and insert

“in subsection (2), after ‘virtue of’ insert ‘(za) section 37(2A)’”.—(Mark Garnier.)

This amendment would make all regulations on DB surplus extraction subject to the affirmative procedure all times they were made rather than just after first use.

Question put, That the amendment be made.

The Committee divided: Ayes 6, Noes 10.

Question accordingly negatived.

Question proposed, That the clause stand part of the Bill.

Clause 9 will amend the safeguards on the sharing of surplus. The details will be set out in regulations, the parliamentary procedures of which we have just discussed. These safeguards will place the safety of members’ benefits at the heart of the policy.

Proposed new subsection (2B) of section 37 of the Pensions Act 1995 sets out the requirements, which are there to protect members, that must be set out in regulations before trustees can pay a surplus to the employer—namely that before a trustee can agree to release a surplus, they will first be required to receive an actuarial certification that the scheme meets a prudent funding threshold, and that members must be notified before surplus is released.

The funding threshold will be set out in regulations, which we will consult on, as discussed. We expect that release of the surplus will be permitted only when a scheme is fully funded on a low-dependency basis. Trustees are already required, through existing legislation, to set a long-term funding and investment strategy that targets exactly this funding level. These funding conditions will be set out in regulations made under the affirmative procedure and debated when first introduced.

Proposed new subsection (2C) will provide the ability to introduce additional regulations aimed at further enhancing member protections, where considered appropriate. Superfunds will be subject to their own regime for profit extraction; I am spelling this out, because we will come to it later in the Bill. The proposed new subsection will allow regulations to be made that are consistent with those provisions. Regulations may prevent payments from superfunds for a period, if surplus regulations come into force earlier than the superfund legislation, which we will debate later in the Bill. Crucially, decisions to release any surplus will remain subject to trustee discretion. I also note the removal of the statutory test in section 37(3)(d) of the Pensions Act, on the grounds that it does no more than reflect trustees’ existing duties.

The technical and consequential amendments at subsections (4) to (7) of clause 9 are to ensure that the new measures sit correctly in existing legislation but do not affect the overall policy. In summary, the clause will ensure that the release of a surplus is subject to strict safeguards. I commend it to the Committee.

Question put and agreed to.

Clause 9 accordingly ordered to stand part of the Bill.