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Financial Services and Markets Bill

My Lords, we are pleased to bring back Amendment 104. I am grateful to the noble Baronesses, Lady Bowles of Berkhamsted and Lady Altmann, for signing the amendment.

Since Committee, and following the suggestion from the noble Lady Bowles, we have incorporated an additional consultee in the form of the Pension Protection Fund. If we are looking at different and better ways to utilise pension funds, it is only right that that body be formally involved in the process. It is important to note that the amendment would not directly lead to changes in how defined contribution and defined benefit pension funds are invested; it merely seeks consideration via a formal review of a number of potential ways forward.

I draw colleagues’ attention to subsection (2) of the proposed new clause in the amendment, which puts

“the safeness and soundness of pension funds”

front and centre. While no investment fund is risk-free, this is about identifying how funds could be used to support high-growth firms and long-term assets, including green infrastructure.

In 2019, the British Business Bank and Oliver Wyman published research which found that the UK’s defined contribution firms are not investing in fast-growing and innovating companies. It is a problem because the UK is home to incredible tech start-ups and life science companies. They are Great British success stories, but their growth potential is sometimes limited by a lack of access to finance. The research found that retirement savings could be increased by a significant amount with just a modest investment in these firms. For example, a 22 year-old whose defined contribution scheme made 5% of investments in the UK’s fastest-growing companies could see an increase in their retirement pot of 7% to 12%.

Having amended the Bill to include a nature target, we must also consider how pension funds can do their bit to help the environment. This review would look at investments to the types of green infrastructure which will fuel our future economic growth and help deliver the transition to a net-zero economy. The Government recently included nature-based solutions as part of the definition of infrastructure in the UK Infrastructure Bank Act. If investment in nature is a suitable purpose for a Government-backed investment bank, we should harness the power of pension funds as well. This review would be timely, with the recent collapse of Silicon Valley Bank and its UK subsidiary and the demise of Credit Suisse sparking panic in the financial markets and hitting the value of pension funds.

The world is changing. More people shop online and work from home, meaning that investment in things like shopping centres and office blocks no longer produces the returns it did in the past. If done properly, small changes to how pensions are invested could have a significant impact on UK economic growth and, more importantly, a significant impact for the scheme members themselves. I beg to move.