The Labour Government is preparing to offer concessions to the House of Lords in an effort to salvage controversial legislation granting them authority to direct pension fund investments into private assets and British companies.
Following last week's vote by peers to strip out the "reserve power" from the Pension Schemes Bill, officials have indicated that a compromise proposal will be tabled after the Easter recess.
The planned amendment would introduce a ceiling on mandatory private market investment at 10 per cent of fund assets, with a requirement that at least half be directed towards UK investments.
This threshold aligns with the voluntary commitments pension providers made under last year's Mansion House accord.
Labour is under fire for doubling down on 'economically illiterate' pension policy
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The existing draft legislation contains no such restrictions on ministerial powers. Despite the proposed compromise, Work and Pensions Secretary Pat McFadden and Chancellor Rachel Reeves remain resolute in their determination to preserve the backstop mechanism.
Their aim is to ensure pension funds deliver on pledges to channel more money into targeted assets designed to stimulate economic growth.
A senior Labour Party source familiar with the Government's strategy told The Financial Times: "We are clear that we want to keep this power in reserve."
"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."
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Rachel Reeves is attempting to bolster the UK economy | RACHEL REEVES / LINKEDIN The Lords had rejected the original proposal following sustained criticism from Conservative and Liberal Democrat peers.
Shadow Work and Pensions Secretary Helen Whately urged ministers to acknowledge their defeat in the upper chamber, arguing that the fundamental issue was straightforward.
She said: "The principle at stake is simple: pensions belong to savers, not the state. Pension funds should be invested in the best interests of savers not the government. Conservatives would remove mandation entirely. Government has no business directing how pensions are invested."
Baroness Sharon Bowles, who spearheaded opposition efforts in the Lords, offered a measured response to the proposed compromise.
Labour minister Torsten Bell has lobbied on behalf of the reforms in the Pension Schemes Bill
| PAThe peer stated: "Any narrowing of the bill would be an improvement. We think any mandation is bad news. Ministers should not be overriding trustees. It is anti-competitive and economically illiterate."
Sir Steve Webb, a former pensions minister now working as a partner at consultancy LCP, welcomed the proposed cap but expressed reservations about retaining the power at all.
He argued that tying the backstop to the Mansion House accord amounted to "punishing the good guys" and questioned, "who will ever enter into a voluntary accord co-ordinated by the Government again?".
Pensions Minister Torsten Bell had signalled the government's shift at an Edinburgh conference earlier this month, stating that the "only purpose" of the reserve power was to "backstop" the Mansion House accord.
A Treasury spokesperson defended the approach, saying the accord aimed to "improve saver outcomes" and that ministers did "not expect to use the reserve power".