The Pension Schemes Bill (the Bill) has continued its legislative journey with the recent Second Reading in Parliament on 7 July 2025, marking a major milestone in the ongoing reform of the UK’s pensions landscape. This stage is crucial, as it provides MPs the opportunity to debate the general principles and themes of the Bill before it proceeds to more detailed scrutiny. For more information on key aspects of the Bill, read our Insight here.
Parliamentary debate and key concerns
Mandating defined contribution (DC) pension scheme investment into wider assets
The Second Reading saw a lively and, at times, contentious debate. While there was cross-party consensus across much of the Bill, there was considerable focus on the provisions relating to the reserve government power aimed specifically at authorised DC Master Trusts and Group Personal Pension plans used for automatic enrolment, allowing the government to mandate that a minimum proportion of scheme funds be invested in “productive” assets, including UK-based productive assets.
This proposal has sparked significant concern across the political spectrum and within the pensions industry. Mark Garnier MP argued that the Bill “reserves the power to mandate pension funds to invest in government priorities …” which “not only goes against trustees’ fiduciary duties … but means potentially worse outcomes for savers”.[1] Other MPs echoed these concerns, warning that the asset allocation requirements could undermine the independence of trustees, expose members to inappropriate risks and ultimately lead to poorer outcomes for savers. There was also a broader worry that such powers could distort markets and reduce the ability of schemes to diversify their investments effectively.
Minister for Pensions, Torsten Bell MP, responded by stating that he does not currently intend to use the power in the Bill, but its existence “gives clarity to the industry that, this time, change will actually come”. This drive to invest in “productive assets” echoes the recent Mansion House Accord commitment by 17 of the UK’s largest workplace pension providers to boost investment in private markets and, specifically, UK assets. Find further information on the Mansion House Accord 2025 here.
Despite these reassurances, a recurring theme throughout the debate was the lack of detail in the Bill. Many MPs and industry stakeholders noted that much of the substance will be left to secondary legislation and future regulations, leaving questions unanswered at this stage. There is uncertainty about how the new asset allocation requirements will be set, what thresholds or targets will apply and how the Pensions Regulator (TPR) will enforce compliance.
Entrants to the superfunds market
Concerns were also raised by MPs on whether the new proposed authorisation and supervision regime of defined benefit (DB) superfunds would feasibly result in more entrants to the superfund market. Lincoln Jopp MP stressed the fact that industry resistance, and the difficulty the Pension SuperFund experienced in seeking authorisation from TPR, has left superfunds facing a regulatory imbalance compared to insurers. To find out more about superfunds, read our article here.
Debate during the Second Reading highlighted that, for superfunds to succeed and deliver the consolidation and improved outcomes the sector needs, the Bill must address these disparities, streamline regulatory processes and provide clear legislative support to give TPR the confidence to nurture this emerging market.
Pensions adequacy
A prominent theme during the Second Reading of the Bill was the ongoing concern regarding pensions adequacy and whether current pension arrangements will provide sufficient income for retirees. Although pensions adequacy is on the agenda as part of the second phase of the Pensions Review, MPs from across the House highlighted that, despite the Bill’s focus on investment reforms and regulatory changes, the fundamental issue of adequacy remains unresolved.
Calls were made for a clearer government strategy to tackle the adequacy gap, including reviewing minimum contribution rates, expanding pension coverage to the self-employed (who currently lack automatic enrolment) and lowering the minimum age for contributions to help younger workers start saving earlier. These suggestions reflect a strong appetite for further action to ensure all groups, especially those currently underserved, can achieve a secure retirement. To find out more about the extension of automatic enrolment in the Pensions (Extension of Automatic Enrolment) Act 2023, read our blog here.
DB surplus return
A further area of debate focused on the treatment of DB pension scheme surpluses. Several MPs discussed whether the Bill should enable greater flexibility in how DB surpluses are used, provided that robust safeguards are in place to protect members’ benefits. Kirsty Blackman MP emphasised that there would need to be a significant amount of guidance for trustees for determining where any surplus return money will go and what agreements trustees will need to make with employers regarding the use of any surplus return. Concerns were voiced about the potential risks of surplus extraction, with calls for clear regulatory oversight to ensure that any changes do not compromise the security of members’ pensions. The debate highlighted the need for a balanced approach that supports scheme sustainability while prioritising members’ interests. Find out more about DB surplus return in the Bill here.
Reaction and next steps
Adding further weight to the debate on mandating investment into wider assets, the Governor of the Bank of England has publicly opposed the UK government’s plan to mandate pension scheme investment in specific asset classes. He warned that such intervention could distort markets and undermine the independence of pension trustees, stressing that trustees are best placed to determine the appropriate investment strategy for their members. The Governor’s intervention has reinforced calls for caution and for any policy changes to prioritise the long-term interests of scheme members.
The Bill will now proceed to the Committee Stage, with the Public Bill Committee launching a call for evidence on 8 July 2025. It is expected that the Committee will conclude reporting by 23 October 2025.
Final thoughts
The Bill is a significant step towards modernising the UK pensions system and enhancing member protection. However, the debate around mandating asset allocation and the scope of regulatory powers highlights the need for careful consideration of the risks and practicalities involved. With many key details yet to be determined, employers and trustees will be watching closely as the Bill moves through the Committee Stage and further clarity emerges on its practical implications.
[1] https://hansard.parliament.uk/commons/2025-07-07/debates/1DE9CFD7-19CD-41FE-B9C3-11B98C860873/PensionSchemesBill
