‘We must protect people, planet and pensions’ – LabourList

I’m proud to be part of a Labour government that is committed to fixing the UK’s pensions system. It may not be the first issue my constituents raise on the doorstep, but how our £3 trillion pensions system works has huge implications for people’s security in older age, gender equality, investment in local jobs and infrastructure, and the financing of the green transition. As Pensions Minister Torsten Bell rightly says, pensions are part of “the financial plumbing of our economy”. 

Labour has a strong track record in this area. The Pensions Commission of the 2000s remains a gold standard in long-term policy making, giving millions greater security in retirement. But we must now apply that same seriousness to the biggest risks facing pension savers and the wider UK economy today and over the coming decades – climate change and the destruction of nature.

READ MORE: ‘The UK must invest well to invest for good’

Of course, we’re not only thinking about current pensioners here. I’m thinking about all my constituents who will retire over the next twenty or thirty years, as the climate crisis escalates. Yet the pension system is still deeply enmeshed with the industries which drive that crisis. UK pension schemes hold around £88bn of savers’ money in fossil fuel companies, including those exploring for new coal, oil and gas. A further £300bn is invested in companies linked to deforestation. These exposures carry enormous financial risks for future retirees, including stranded assets, instability in global markets, and the economic shocks that follow unmitigated climate breakdown.

Recent modelling suggests pension valuations could fall by 20–30% by 2040 if runaway climate change is not halted – hardly the secure future savers are promised. We would be negligent not to confront this.

The Pension Schemes Bill now before Parliament is a major step in Labour’s landmark programme to reform pensions for the modern era. Its ambition to boost investment in UK productive assets – helped by consolidating smaller schemes into large “megafunds” able to invest in infrastructure and long-term growth – are absolutely the right ones. But if the Bill is to deliver a genuinely future-proofed system, it must be strengthened on climate and nature. As the Chancellor has said, every part of financial regulation must now embed these systemic risks.

That is why I and colleagues across the House are supporting proposals to give the government, for the first time, the power to require pension schemes to phase out investment in fossil fuels. Existing policies – largely focused on transparency and voluntary disclosure – have simply not produced the scale or speed of action required. The environmental crisis is too urgent, and the financial risks too large, for such a passive approach. Our government is rightly prepared to take more proactive measures in directing pension schemes towards investment in productive assets to support member returns and national economic growth. For the exact same reasons, we should be willing to direct schemes away from fossil fuels.  

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The amendment proposed in NC19, tabled by Liberal Democrat MP Manuella Perteghella, offers a sensible, practical starting point. It would require pension schemes to begin phasing out investments in fossil fuels, beginning with thermal coal overseas. This is long overdue. Even though the UK has now eliminated coal from its own power grid, British pension savings still fund coal expansion abroad. Research from Corporate Adviser earlier this year found that half of the largest automatic-enrolment schemes remain invested in thermal coal or other unconventional fossil fuels.

The amendment also proposes a review mechanism to assess, year by year, whether further fossil fuel investments – particularly those linked to expansion or exploration – should be prohibited due to elevated climate risk. The staged approach would support an orderly and managed transition, giving schemes time to adjust while protecting savers.

This is welcome, but realistically, it is the least we should be doing. The government has joined more than 80 countries in committing to phase out fossil fuels as part of the COP30 process. Ensuring that the UK’s own pension savings are aligned with that commitment is both logical and responsible. It’s also in the direct financial interests of pension members who deserve confidence that their lifetime savings are protected from foreseeable, escalating risks.

I hope colleagues across Labour benches will look closely at these proposals ahead of the Report Stage. Torsten Bell has set out to build a pensions system fit for the twenty-first century. But no system can be future-proof if it ignores the profound economic consequences of climate change and ecosystem collapse. 

A modern pensions regime must recognise these risks and act decisively to mitigate them. It is central to securing the long-term prosperity of savers, the resilience of our economy, and the credibility of our climate leadership. 

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