Pension reforms supported by MPs despite warning of ‘dangerous’ mandation power

A proposed mandation power has been branded “dangerous” by the Conservatives, as the Houses of Parliament continue to tussle over the Government’s planned pensions reforms.

Under the Pension Schemes Bill, the Government would be able to tell pension funds how they should invest a certain amount of their funds, with the aim of encouraging economic growth in the UK.

The portion of funds would be limited to 10%, by value, of all assets of the scheme in main default reserves, or 5% of assets to be held in UK-specific description.

This is in line with a voluntary agreement by 17 of the UK’s largest defined contribution schemes in the Mansion House Accord last year.

Shadow work and pensions secretary Helen Whately argued pensioners will retire with less if the Government “pushes pension schemes into the wrong investments”.

Work and pensions minister Andrew Western set out a proposal which would make it easier to qualify for an exemption, in a bid to compromise during the process of parliamentary ping-pong.

While the Commons passed the vote and rejected changes put forward by peers, later on Monday the House of Lords reinstated their amendments – 197 in favour to 129, majority 68.

It will now return to MPs for further debate.

Mr Western told the Commons: “The savers interest test now provides a lower threshold, an explicit guarantee that exemptions will be granted where the test is met, a requirement for the regulator to give proper weight to the scheme’s own analysis and transparency and accountability if an application should fail.

“Taken alongside the constraints on the power itself – the percentage caps, the single use restriction, the 2032 sunset and the 2035 full repeal – this is a framework of strong and explicit protections.

“There are those here and in the other place who would prefer the reserve power not to exist at all. But as members of this House know, we respect that position, but it is not a position we share, and it is not the position of the Government.

“There is a well-evidenced collective action problem in the defined contribution market, and the consequences of leaving it unresolved fall on pension savers. That is not a risk the Government is prepared to take.”

Ms Whately said: “Mandation risks undermining public trust in the pensions system, and that is why this power is not just unnecessary, it is dangerous, and it has no place in this Bill.”

“If the Government pushes pension schemes into the wrong investments, and if those investments underperform, and if savers end up with weaker returns, who carries the can? Not the minister … not the Government which legislated for this power, it will be pensioners who retire with less,” she added.