Ministers have introduced amendments to the Pension Schemes Bill that would limit their ability to direct how defined contribution pension schemes invest members’ savings.
Under the revised proposals, any mandated asset allocation would be capped at 10 per cent of total assets held in default funds.
Within that, no more than five per cent could be directed specifically into UK-based investments.
The changes come ahead of the Bill’s return to the House of Commons on April 15.
TRENDING
Stories
Videos
Your Say
The legislation suffered a defeat in the House of Lords last month, where peers voted 217 to 113 to remove the reserve power entirely.
Conservative and Liberal Democrat peers led opposition to the measure.
The original version of the Bill contained no limits on ministerial powers.
The reserve power would allow ministers to require defined contribution schemes to invest in areas such as infrastructure, start-ups and private markets.
Ministers cap pension investment powers after Lords defeat
|GETTY
The proposal has faced sustained criticism from across the pensions industry.
Industry groups have argued that investment decisions should remain with trustees, who are legally required to act in the best interests of members.
Zoe Alexander, executive director of policy and advocacy at Pensions UK, said: "This is a win for savers."
She added that the original proposal "would expose millions of workers' retirement savings to political cycles and undermine the duty of pension trustees to act at all times in the interests of savers".
LATEST DEVELOPMENTS
Are you affected by state pension age changes? | GETTYThe Government has said it does not intend to use the power and that it is designed as a backstop to the voluntary Mansion House Accord.
Julian Mund, chief executive of Pensions UK, welcomed the amendment.
"Pensions UK firmly supports the passage of the Pension Schemes Bill, which enacts a series of critical reforms in savers' interests."
He added: "The amendment to the reserve power which mandates DC pension schemes' asset allocation addresses our most serious concern and brings the legislation in line with the Government's stated intention of acting only as a backstop to the Mansion House Accord."
The revised caps reflect targets already agreed by 17 of the UK’s largest defined contribution pension providers under the Mansion House Accord.
Tories blast Labour for pension overreach
|GETTY
These firms have committed to increasing investment in unlisted assets both in the UK and internationally.
Mr Mund said the sunset clause should be brought forward to limit the long-term use of the power.
The Conservative opposition has called for the provision to be removed entirely.
Helen Whately, the shadow work and pensions secretary, said: "The principle at stake is simple: pensions belong to savers, not the state."
She urged ministers to reconsider following their defeat in the Lords and said the Government has "no business directing how pensions are invested".
Baroness Sharon Bowles, who led opposition to the measure in the Lords, said the changes represented an improvement but did not go far enough.
"We think any mandation is bad news. Ministers should not be overriding trustees."
She added that the policy was "anti-competitive and economically illiterate".
A survey conducted by YouGov for the Association of British Insurers found 72 per cent of respondents had little or no confidence in Government decisions about pension investments.