Pension Schemes Bill
House of Lords · Lords Chamber · 16 Mar 2026 · 83 speeches · Official Report
Report (1st Day)
Scottish, Welsh and Northern Ireland l egislative c onsent granted. Relevant documents: 42nd and 47th R eports from the Delegated Powers and Regulatory Reform Committee.
Clause 1: Asset pool companies
Amendment 1
Moved by
1: Clause 1, page 2, line 31, at end insert- “(ca) the Government Actuary’s Department;(cb) the Pensions Regulator;”
My Lords, it is a pleasure to open Report on the Pension Schemes Bill. As we start, we should be clear that the Bill’s success will be measured on the extent to which it makes it easier for people to take personal responsibility and save for their future, and make their savings secure, while permitting appropriate risk-taking and capital to grow the economy. I should declare some interests. I have been a trustee of the Norfolk pension scheme for well over 20 years and a member of the Local Government Pension Scheme advisory board since its inception-in fact, I will retire from that on Monday. During that period, I have served on the Firefighters’ Pension Scheme and been chair and vice-chair of the Local Government Pension Committee, which is the body representing the employers in the scheme. Today is about the Local Government Pension Scheme. The LGPS is different from most of the other public schemes because members have put money aside for their retirement-and that is important. My Amendments 1, 2 and 5-to which the noble Baroness, Lady Altmann, has added her name-relate to the overarching structural organisation of the 87 schemes that feed into a number of pools. Let us dispose of Amendment 1 first. In my personal experience, I have found that just limiting the list of consultees to the FCA would be insufficient. I think there has probably been a misunderstanding in the department about the fact that the Government Actuary’s Department and the Pensions Regulator really do...
My Amendment 2 would allow a scheme to be a member of more than one asset pool. Here I have in mind a specialist national infrastructure asset pool. Let me explain. The LGPS has about £400 billion under management. The Government set a target of about 10% into infrastructure-£40 billion for the whole lot. That is a chunky piece of change, but it is going to be jam spread across half a dozen pools-£4 billion or £5 billion each. It is not even a needle mover. A billion, which would be 20%, does not go far nowadays. As those promoting the Lower Thames Crossing-a critical piece of infrastructure-will tell noble Lords, £0.5 billion was spent on fees before a brick had been laid. With only £4 billion or £5 billion per scheme-and you cannot make those chunky investments, because they would be too big and give the fund indigestion-it could be more than sensibly allocated by the trustees of a single pool, driving a concentration risk.
If the schemes could not club together, as my amendment contemplates, the local pool would need to have a 20% asset allocation to a single piece of infrastructure in its patch. It is a nonsense. It breaks every investment rule in the book: concentration risk and lack of diversity. It cannot be right. The Government prevent all the other schemes jumping on the bandwagon of an otherwise good opportunity. The effect is that a pension pool in the south would not be able to invest in an infrastructure opportunity in the north. How crazy is that?
What about border effects? If there is a pool, there will be a border somewhere. My amendment seeks to get rid of the edge effects of preventing a fund investing just over the border, possibly the other side of the street-those of us who have been involved in local government for a long time know that there is always a street between boroughs where the bin collection and recycling are different.
The Government say they want scale. Let us give it to them. But it happens only by allowing the scheme in aggregate, the closest thing we have to a national wealth fund, to have the scale and heft to make those chunky investments.
I know that the DWP Minister will want to help the MHCLG. That is the right way-other than in the previous debate, when the noble Lord got in a muddle. But can the Government not see the nonsense and jeopardy in preventing the LGPS, structurally and by law, investing in the infrastructure that the Chancellor says she wants?
There is a further complication. In another Bill before your Lordships’ House, we will shortly contemplate local government reorganisation. I do a bit of work on this, and I can certainly contemplate that the mergers of authorities across county boundaries will happen. Wiltshire is already unitised, but it is not unthinkable for Swindon to be placed in Oxfordshire or partly in Berkshire. Paradoxically, the efficiencies of merging those councils under LGR would result in a wholly unnecessary demerging of some funds to reconstitute them elsewhere, because you would arbitrarily fall on the other side of a boundary. That is nuts.
To summarise, there really should be a single national specialist infrastructure pool if we are serious about the LGPS investing in the long-term future of our nation. All the pools should be able to join-a southern pool investing in the north and vice versa, and other pools investing just over the boundary in opportunities where their members gain. If we do not permit this, it will contribute to poorer incomes in retirement and damage trust and confidence in a pension scheme that is already on shaky ground. I beg to move.
My Lords, I have Amendment 4 in this group. This concerns mandation, which we will debate more extensively later this week in connection with defined contribution schemes. Amendment 4 seeks to ensure that mandation cannot apply to the LGPS. This amendment should be easy for the Government to accept. This mandation amendment, unlike the ones we shall debate on Thursday, reflects what the Government have said is their policy. Clause 1 gives the Government very extensive powers to tell local government pension funds what they may or may not do in relation to asset pool companies and scheme managers. Clause 2 says that any Clause 1 regulations must-not may- “make provision about the management of the funds and other assets”. As is usual with regulation-making powers, they are unconstrained. While Clause 2 lists some of the things that could be included in the regulations, it contains no restrictions on the use of the power. I have tabled Amendment 4 seeking to ensure that the power cannot be used to tell local government schemes to invest in particular assets, asset classes or locations of investment. I firmly believe that fiduciary duties are paramount and should never be interfered with by the Government, whether in relation to public sector schemes such as the LGPS or private sector ones, which we will debate on Thursday. The noble Lord, Lord Katz, said in Grand Committee on 12 January: “To be absolutely clear … we are not mandating asset pools to invest in certain ways in...
Baroness Bowles of Berkhamsted
My Lords, I will speak to Amendments 2 and 5, which address the same underlying issue-whether pooling and expertise in the Local Government Pension Scheme is intended to support good investment decisions or to constrain them. I will speak in support of Amendment 4, to which I have added my name. No one disputes that there can be value in scale, but scale does not require exclusivity. Nothing in the case for pooling requires funds to confine to a single pool, unable to access specialist expertise developed elsewhere. The LGPS is a federation of, I think, 89 funds with different demographics, liabilities and investment strategies. It is entirely foreseeable-indeed, it is already happening-that one pool will develop a particular strength in, say, infrastructure, and another in renewables or local investment opportunities, or, as has already been outlined, it may be that the investment opportunity is large and accessible only by more than one joining together. Why should a fund be prevented from accessing that expertise or that scale simply because it sits in a different pool? Looking at it from the non-scale end, I have personally spoken to fund managers who wanted to invest local to support infrastructure at local scale but who do not want all that exposure in their own area, for reasons of diversification. They have had their fingers burned with shopping centres. The current drafting would make that unnecessarily difficult. In Committee, the Government were clear that they...
My Lords, I have added my name to Amendments 2, 4 and 5, so I will speak to those. I support the noble Lord, Lord Fuller, in his Amendment 1. The addition of the Pensions Regulator, alongside the FCA, is very important. I must declare my interest as a non-executive director of a pensions administration company and as a board adviser to a pensions DC master trust. Amendments 2 and 5 are really important in the context of the Local Government Pension Scheme. The LGPS is an unusual type of defined benefit scheme; it is not like any of the others which are funded, because it is underwritten by the Government. It does not pay a levy to the Pension Protection Fund and the Government completely underwrite all liabilities, so of course the trustees are able, perhaps, to feel that they can take more risks than a defined benefit scheme, which is supported only by an employer which may fail and the members end up in the PPF. Having said that, unless the Government wish to change the Local Government Pension Scheme into another unfunded public sector scheme and just take all the assets in-which they could do-surely it is important to ensure that the trustees can make investment decisions that they believe are best, rather than the Government suggesting they know better and telling them what to do. Amendments 2 and 5 both address restrictions on the ways in which the Local Government Pension Scheme can invest, whereby it has to choose to belong to one asset pool and that is it-it could...
My Lords, first, I have to declare an interest because after 28 years as a councillor in the London Borough of Barnet, I am in receipt of a modest local government pension. I sometimes forget to declare that and I do so now. We have been lucky to have incisive speeches from the noble Lord, Lord Fuller, the noble Baroness, Lady Noakes, my colleague and noble friend Lady Bowles and the noble Baroness, Lady Altmann. After them, I almost want to ask, “Is there anything else one should say?”, but as a politician, I will do so. This has been a useful debate on the future governance of the Local Government Pension Scheme, and there is a common theme running through it: the need to protect fiduciary responsibility while ensuring that governance is modern, credible and transparent. The amendments in this group range from consultation requirements to the possibility of participation in more than one asset pool, and to the important question of whether Ministers should be able to steer investments towards particular assets and places. I hope that Amendment 4 will be moved at the end of this debate; I would certainly want to support that amendment, if the noble Baroness decides to move it. We on these Benches recognise that pooling can bring efficiencies and expertise, and we generally welcome the provisions on the Local Government Pension Scheme in the Bill, but bigger is not always better simply because it is bigger. Flexibility matters: if one pool has genuine expertise in a special...
My Lords, I want to start by thanking my noble friend Lord Fuller for commencing our discussions on this important Bill, which is now on Report. We on these Benches look forward to an effective and constructive Report and hope that we can work with noble Lords across the House to make the improvements to the Bill that, in our view and that of many in the pension sector, are desperately needed. Towards the end of my remarks, I will speak to the important Amendment 4, in the name of my noble friend Lady Noakes, but first I will speak briefly in support of Amendment 1, in the name of my noble friend Lord Fuller, and Amendments 2 and 5, in the names of my noble friend Lord Fuller and the noble Baroness, Lady Altmann. Taken together, these amendments would make constructive improvements to the Bill. Amendment 1 would ensure that both the Government Actuary’s Department and the Pensions Regulator are formally consulted before directions are given in relation to asset pool companies. This seems an eminently sensible and proportionate safeguard. The provisions in the Bill give the Government significant powers to direct changes relating to LGPS pooling arrangements-changes that, in practice, may reshape the investment structures of some of the largest pension funds in the country. Decisions of that magnitude should not be taken without the benefit of the best available expertise. Requiring consultation with the Government Actuary’s Department and the Pensions Regulator would ensure...
Turning briefly to the remaining amendments from the Government, we appreciate the Minister bringing these forward. However, they do not address the core concerns raised about the LGPS, both in this Chamber and in discussions with the Minister outside it. For that reason, although we welcome the Government’s engagement, we are disappointed that they have not taken this opportunity to address those broader issues.
We entirely support Amendment 4 in the name of my noble friend Lady Noakes. We will return to the broader issue of mandation in more detail on the second day of Report, as she said, but my noble friend is absolutely right to have raised the point now. Mandation does not arise only elsewhere in this Bill; it is also present in relation to the Local Government Pension Scheme. This amendment is designed to prevent the Government using the Bill’s new regulatory powers to direct pension funds towards politically preferred investments. We are absolutely clear on this point: investment decisions should be made by fund managers acting in the interest of members, and government should not steer pension assets towards particular sectors, projects or locations.
The amendment would insert a clear restriction stating that regulations made under Clause 2 may not include provisions requiring investment in specific assets, asset classes or geographical locations. Pension assets exist to secure the retirement income of members, not to serve as instruments of industrial policy. Those responsible for managing these funds are bound by fiduciary duties to act in the best interests of their members, and Governments are not. For that reason, this amendment is extremely important, and we will support my noble friend Lady Noakes if she decides to test the opinion of the House-she said in her opening remarks that she was minded to do so.
My Lords, I am grateful for our discussion on this first group. I am indebted to the noble Lord, Lord Palmer of Childs Hill, for reminding me too that I should declare my membership, as a former Camden councillor, of its members’ pension scheme-although I defer to him in terms of seniority in years of service: I did a paltry one term, as opposed to his gazillion, I think it was, in the neighbouring council in Barnet. I share the interest raised in this discussion in fostering greater collaboration and sharing of expertise across the LGPS and ensuring that there are appropriate safeguards in the Bill. On Amendment 1, tabled by the noble Lord, Lord Fuller, it is right that we ensure that appropriate safeguards are in place on the use of direction powers. To reiterate, these are included in the Bill as backstops to ensure that the Government can fulfil their role as stewards of the scheme, but let me be clear that the direction powers in the Bill are not designed to allow the Government to direct investment into specific assets or asset classes, and the Government are satisfied that they cannot be used in this way. The Bill already requires the Secretary of State to consult the asset pool company, its participating partner authorities, the FCA and any other body that the Secretary of State considers appropriate, prior to the exercise of the direction powers. I do not believe that the Pensions Regulator is an appropriate body for this list. Asset pool companies will be regulated...
Before the Minister sits down, he said that Amendment 4 is unnecessary because the Bill does not do what the promoters of Amendment 4 argue that it does. He did not say that it would be malign, that it would frustrate the efforts of the Government, that it was wrong in any way; he merely said that the Bill already achieved what the promoters of the amendment want and therefore it would be superfluous. What damage would therefore be done if Amendment 4 were accepted? In what way would it damage the Government, damage pension fund trustees or damage pension fund members? It is not good enough to say simply that the noble Baronesses, Lady Altmann and Lady Bowles, and the noble Lord, Lord Palmer, are wrong, and for us to take it on trust. That is not what we should do.
I say simply that if we took that approach to all legislation, we would end up with Bills hundreds or thousands of pages long, because we might pile on more amendments simply because they are well-intentioned. It is important that we are clear about the legislation that we are drafting, so that people in the pensions sector, lawyers, et cetera, can properly interpret what we intend-by any legislation, not just this Bill. When we say that something is superfluous, we do not add it in: I think that is a perfectly decent criterion by which to legislate. The noble Lord, Lord Gove, shakes his head. I say to him gently that both this and the previous Government have had a lot of criticism for large Bills and there is always an onus on us to have slimmer legislation. We will not get slimmer legislation by accepting willy-nilly amendments that we think are superfluous.
My Lords, I am afraid that that answer is completely inadequate.
Noble Lords
Order!
My Lords, it has been an interesting debate. The LGPS is special. It is the closest thing, as a number of noble Lords have said, to having a sovereign wealth fund in our islands, and I am unconvinced by the points made by the noble Lord, Lord Katz. He has misunderstood what local investments are. I do not accept for a moment his reassurances around the creation of specialist pools. As my noble friend Lord Younger said from the Front Bench, this increases unnecessary rigidity, damages coherence and misunderstands the distinction between funding and financing. I suppose noble Lords can be grateful for at least one thing: as the noble Lord, Lord Katz, was at the Dispatch Box, it saved the Minister, the noble Baroness, Lady Sherlock, repeating the old trope that the large Ontario and Canadian pension funds are the sorts of things against which the LGPS should be marked. Today, the Financial Times reported that the Ontario funds have fallen away by 5.3% over the last year, while the LGPS has grown by 9%. This is what happens. I am conscious that I am winding. I will not press Amendments 1, 2 and 5 to a vote, but I will support my noble friend Lady Noakes in the Lobby if she chooses to divide the House.
Amendment 1 withdrawn.
Amendments 2 and 3 not moved.
Clause 2: Asset management
Amendment 4
Moved by
4: Clause 2, page 4, line 24, at end insert- “(4A) The provision made by virtue of subsection (1) may not include any provision about investment in specific assets or asset classes or about the location of investments.”
My Lords, I beg to move.
Amendment 5 not moved.
Clause 4: Exemption from public procurement rules
Amendments 6 to 8
Moved by
6: Clause 4, page 6, line 4, at end insert “acting in its capacity as a local government pension scheme manager” Member's explanatory statement This is a drafting amendment to clarify that only contracts made by a local government pension scheme manager acting in its capacity as such can be exempt contracts under clause 4.
7: Clause 4, page 6, line 17, at end insert “acting in their capacity as local government pension scheme managers” Member's explanatory statement This is a drafting amendment to clarify that the “80% condition” refers only to investment management activities carried out for local government pension scheme managers acting in their capacity as such.
8: Clause 4, page 7, line 11, after “a” insert “local government pension” Member's explanatory statement This is a drafting amendment to clarify that in the definition of “investment management activities” the reference is to funds or other assets for which a local government pension scheme manager is responsible.
Amendments 6 to 8 agreed.
Amendment 9
Moved by
9: After Clause 7, insert the following new Clause- “Benchmarking of Local Government Pension Scheme liabilities(1) For each actuarial valuation relating to a scheme for local government workers which has pension funds, an administering authority must obtain and publish-(a) the primary valuation used for funding purposes, and(b) one or more benchmark valuations of scheme liabilities based on-(i) prevailing bulk annuity pricing, and(ii) a gilt-based discount rate.(2) The valuations published under subsection (1) must be published at the same time as the funding strategy statement, and alongside the employer contribution rates arising from the funding valuation.(3) Where the funding valuation is materially more prudent than the benchmark valuations, the administering authority must publish a statement explaining-(a) the risks being guarded against,(b) why those risks justify a higher degree of prudence than that reflected in insurer pricing, and(c) the impact on employer contribution rates.(4) The funding strategy statement must include appendices explaining the valuation assumptions, benchmarks, and their effect on contribution rates in a form that is reasonably accessible to a person who is not a qualified actuary.(5) The statement must be communicated to the relevant local authority and made publicly available.(6) The documents published under this section must be made available in a manner that enables meaningful consultation by scheme employers and scheme members.(7) In...
My Lords, I move Amendment 9 standing in the names of my noble friend Lord Younger of Leckie and myself. During the passage of this Bill, we on these Benches have had a great many discussions not only in this Chamber but with industry experts, scheme managers, employers and others who will be directly affected by the provisions before us. Those conversations have been extremely valuable and have revealed something that many of us have found increasingly concerning. We have been made aware that, in a number of cases across the Local Government Pension Scheme, employers are being asked to contribute very substantial sums into pension funds; these levels of contribution appear to go well beyond what would be required for those funds to be fully funded, even on a very prudent basis. Of course, prudence is essential in pension funding, and no one in this House would dispute that. Pension promises stretch decades into the future, and it is right that those responsible for safeguarding them take a cautious and responsible approach when assessing liabilities and setting contribution rates. What we are seeing in some cases, however, appears to move beyond prudence into excessive prudence. When contribution requirements are set significantly above what would be necessary even under extremely cautious valuation assumptions, the consequences are that employers, local authorities, academies, housing associations and others are required to divert even greater sums of money into pension...
My Lords, I support Amendment 9 in the names of my noble friends on the Front Bench and place on record that there are some very good behaviours among the Local Government Pension Scheme administering authorities that already follow the path laid out in the amendment, which would then be placed on a statutory basis. I would not want people to think that none of that best practice happens, or that the numbers are just plucked out of the air-that is not the way it is at all. The purpose is that all schemes reach expectations and assess their liabilities in aggregate, not just for each of the councils-most people without this House would think the LGPS is a scheme for councils-but all the other admitted bodies as well. As I said in the previous group, when I first joined the Norfolk scheme about 20 years ago, there were about 70 admitted bodies; there are now 500, so it is extraordinarily complicated. Nationally, on a whole-of-LGPS basis, there are 6,160 scheduled bodies, 3,639 admitted bodies, 478 designated bodies-I do not know what they are, but I think they might be with the Environment Agency-and 15,049 employers with active members. The key thing, in support of my noble friend Lady Stedman-Scott, is that when we look at all these contribution rates, it is not just taking the scheme in aggregate; we have to drill down to all the particular liabilities for each employer in the scheme. I am now drifting into the complication we often hear so much about, which is used to...
I do not mean to be unkind to the tablers of this amendment, but it is nonsense, in my view. As the noble Lord, Lord Fuller, explained, I can confirm that I am a fellow of the Institute and Faculty of Actuaries. To be honest, this amendment would mean more work for actuaries, on the face of it. Who will do these independent assessments? It is presumably people who know what the technical nature of a pension scheme is-to that extent, maybe I am not against the amendment. It suggests that it should be benchmarked against two things that are irrelevant. The Local Government Pension Scheme is not insured. It is not invested totally in gilt-edged securities. You could calculate those figures, but what do they tell you? Absolutely nothing. The fundamental problem with this proposal is that it is the administering authority that decides on the contribution rate, not the actuary. It is not the actuary who decides how much prudence should be in the figures. The actuary provides advice and the administering authority decides. If, for whatever reason, the administering authorities feel that they do not have enough control over the situation then that is a matter for them to sort out. It does not require legislation to say that administering authorities should do their job-it is already their job, and they should get on and do it. Finally, even if an appropriate level of prudence was applied when deciding the contribution rate, that money-which, for the sake of prudence, is paid into...
My Lords, this group asks for greater transparency around Local Government Pension Scheme valuations by requiring benchmarking against insurer pricing and gilt-based discount rates, with clearer explanations where more prudent assumptions are used. There is value in greater openness and comparability, but there is also a risk in appearing to imply that one benchmark can neatly settle what is, in practice, a complex actuarial judgment. I was taken by the contribution from the noble Lord, Lord Davies. He really killed off the amendment by saying that it would give more work for actuaries. The tendency is for the actuary then to say, “On the one hand this and on the other hand that”. Very often, the advice is not even that definite anyway, which is why actuaries are there to confuse the issue altogether. We should be honest about two things at once. First, employers and scheme participants need clearer information. If valuation choices materially affect contribution rates, local authority budgets and, ultimately, local services then those choices should be explained in language that non-specialists can understand. Secondly, the Local Government Pension Scheme is not simply an insurer in another form; it is a long-term, open, public sector scheme with characteristics that very much differ from closed private arrangements. Although comparison can illuminate, it must not mislead, as is the danger. A benchmark should be a tool for understanding, not a back-door instruction about...
I thank the noble Viscount, Lord Younger of Leckie, for the amendment, moved very ably by the noble Baroness, Lady Stedman-Scott. It seeks to improve the transparency of the assumptions and level of prudence applied in LGPS actuarial variations, including through the introduction of additional benchmarks. The 2025 triennial valuation will conclude on 1 April, and at present we do not have a complete picture of its outcomes across the 87 different funds and more than 20,000 employers in the scheme. The amendment seeks to prescribe remedies before any diagnosis has been made or, indeed, any maladies have been fully understood. Many of the matters raised will be covered by the Government Actuary’s Department report under Section 13 of the Public Service Pensions Act 2013. The report will assess whether employer contributions have been set at levels appropriate to ensure solvency and long-term cost efficiency, whether funds’ valuations comply with the regulations and the degree of consistency between them. Recommendations will then be taken forward by the Ministry of Housing, Communities and Local Government and the scheme advisory board. Officials are already engaging with the Government Actuary’s Department, which is targeting a publication date of spring 2027 for its report and recommendations. Your Lordships’ House will be pleased to hear that this is earlier than previous valuations, which I hope demonstrates the seriousness with which we are taking the issues raised by...
Your Lordships have got me.
Noble Lords
Hear, hear!
I did not say it for that to happen-just to clarify matters. I am grateful to all noble Lords who have contributed to this debate and thank the Minister for his response. It has become clear in our discussion that the issue this amendment raises is not simply a technical question about actuarial methodology or valuation frameworks; it is about the very real pressure being felt by employers across the Local Government Pension Scheme and the consequences of those pressures for local services and for the taxpayers who ultimately fund them. We remain concerned that this is not yet something that appears to be firmly on the Government’s radar, yet the evidence we have heard from employers, advisers and those operating within the system suggests that it is an issue that requires attention. This is not something that we have plucked out of the air, made up or brought to the Chamber today based on a whim. It is from interviews and meetings that we have had with experts in the system who say that this needs looking at. We were told about one local government pension scheme that is 189% provided for. While we have to be careful, balance things and rely on the experts, that is just a bit out of kilter. Across the country, councils and other employers are facing extremely difficult financial circumstances. Many are asking for emergency support simply to maintain the services on which their communities depend. In that context, it cannot be right that questions about whether pension...
Amendments 10 and 11 not moved.
Amendment 12
Moved by
12: After Clause 7, insert the following new Clause- “Interim reviews of employer contributions rates in the Local Government Pension Scheme(1) The Secretary of State must by regulations made under section 3 of the Public Service Pensions Act 2013 (scheme regulations) amend the Local Government Pension Scheme Regulations 2013 (S.I. 2013/2356) as follows. (2) After regulation 58(4) (funding strategy statement), insert-“(5) The funding strategy statement must comply with regulation 64A(2) and be published in a form accessible to non-specialist readers.”(3) Regulation 64A (revision of rates and adjustments certificate: scheme employer contributions) is amended as set out in subsection (4).(4) For paragraphs (1) and (2), substitute-“(1) The administering authority may obtain a revised rates and adjustments certificate where the funding strategy statement sets out the administering authority’s policy on revising contributions between valuations and one or more of the following conditions is met-(a) there has been a significant change in the liabilities arising or likely to arise since the last valuation;(b) there has been a significant change in the employer’s ability to meet its obligations to the Scheme, consistent with that employer’s obligations to deliver value for money and services for local taxpayers;(c) the employer requests a review and agrees to meet the reasonable costs of that review.(2) The funding strategy statement must include a clear and accessible policy on...
My Lords, I will address Amendment 12, which stands in my name and that of my noble friend Lady Stedman-Scott. This amendment addresses an issue that sits at the very centre of the concerns we have raised throughout the passage of the Bill: how contribution rates in the Local Government Pension Scheme are set, reviewed and scrutinised. This debate will take us further than the previous debate on a related issue. Throughout the passage of the Bill, we have returned repeatedly to a central concern about the Local Government Pension Scheme: whether the system as it currently operates is truly striking the right balance between prudence and responsibility to members. We touched on that during the last debate. Prudence is essential; no one disputes that. Pension promises stretch across decades and it is entirely right that those responsible for safeguarding them adopt a careful and responsible approach-I feel sure that when or if he chooses to speak, the noble Lord, Lord Davies, will have something to say on this matter-because prudence must also be proportionate, transparent and sustainable. A pension system must not only protect members’ benefits; it must also operate in a way that is affordable for those who are required to fund it. That balance is fundamental to the long-term health of the scheme and a key consideration for many admitted bodies considering if they should remain a member of it. The noble Lord, Lord Katz, alluded to this in a previous debate, but at present...
My Lords, I support this amendment. This is an important time to talk about the contribution rates to the Local Government Pension Scheme. When funding has changed so substantially in a very short period of time, having an interim review clearly makes sense, for not only the local authority but the council tax payer. As we heard in a previous debate, we are seeing councils with significant surpluses continuing to spend council tax income on pension contributions to schemes that do not need them because they are in significant surplus. Further, fixing contribution rates in a three-year cycle underestimates the timeframe that has gone into the setting of those rates, because the valuations on which those rates are based were done more than three years before the third year of the cycle. It takes about a year for the scheme valuation to be done and the contribution rates to be set, so they could easily be four years behind. A lot can happen, and has happened, in that timeframe. I hope the Government will accept that this principle of allowing councils to be more flexible with the revenue that they receive from council taxes could benefit local authorities and the country. We know that councils have been forced to increase council tax due to their inability to meet their basic spending commitments. If the amount that councils spend on pension contributions could instead be spent on social care, or other local authority needs, they would require less money from local...
I thank the noble Viscount, Lord Younger of Leckie, for his amendment, and I share the interest in ensuring that interim valuations are accessible and transparent for all employers in this scheme. Amendment 12 proposes changes to Regulation 64A of the Local Government Pension Scheme Regulations 2013, which concerns valuations carried out outside of the triennial valuation cycle. In Committee, I committed that the Government will consult on changes to Regulation 64A this year, and we will consider the matters raised as part of that consultation. I reiterate the point I made in Committee: any changes to regulations need to be properly considered to avoid unforeseen consequences. The views of employers, funds and other sector groups are vital to this process, and amending legislation now would prevent them contributing to the policy design and therefore ensuring our ability to get the best possible outcome. There is clearly value in having a mechanism that allows employers to review contribution rates, especially where employer covenants or liabilities change significantly, but this must remain consistent with the triennial valuation and be workable for all participants across the sector. Amendment 12 aims for additional transparency, in a similar vein to the other amendments we have discussed this afternoon. The noble Viscount should note that the policy on interim valuation contribution reviews is set out in the funding strategy statement, on which employers are consulted....
I am grateful to the Minister and to my noble friend Lady Altmann for her supportive remarks. This amendment raises a simple but important question: how do we ensure that the Local Government Pension Scheme remains responsive, transparent and accountable when the financial circumstances surrounding it change? It sounds to me very reasonable. I have taken note of the remarks made by my noble friend Lady Altmann, from her long experience. It was interesting that she pointed out that the timeframe of three years could easily be four years for the delays that necessarily have to be there, and she made further powerful points. By accepting this amendment, the Government could have a greater chance of achieving their growth targets with a domino effect-they might like to take that point on board. Across the country, as my noble friend Lady Stedman-Scott said in the previous debate, many local authorities and other participating employers are operating under immense financial pressure. We know that councils are already struggling to balance their books, and some are being forced to seek emergency support simply to maintain basic services. In that context, the ability to review contribution rates where circumstances have materially changed is surely a matter of responsible governance. The amendment is simple. It would establish a clearer framework through which contribution rates could be reviewed when there is a good reason to do so. For those reasons, I believe this amendment...
Clause 9: Power to modify scheme to allow for payment of surplus to employer
Amendment 13
Moved by
13: Clause 9, page 10, line 36, at end insert- “(6A) Prior to making modifications to scheme rules in line with this section, trustees must commission and consider relevant formal actuarial advice regarding the impact of surplus distribution on scheme funding and future member or employer benefits and must consider alternative approaches for dealing with a surplus that include-(a) running the scheme on without new contributions,(b) transferring to a superfund, and(c) buying annuities.”Member’s explanatory statement This amendment would require trustees to ensure they have had formal advice about surplus distribution before changing scheme rules, and the impact of alternative ways to deal with scheme funding.
My Lords, Amendment 13 is in my name. I shall also speak to Amendment 15, which is very similar. I also support the aims of Amendments 14 and 16 to 19, which seek to make sure that members’ interests are taken into account when trustees distribute, or consider distributing, a surplus to employers. Amendment 13 seeks to build on the important discussions we had in Committee. I thank the Minister for her thoughtful responses to those discussions. I appreciate the Government’s commitment to ensuring that defined benefit pension schemes can contribute to economic growth through the prudent and efficient use of their substantial surpluses. With around £1.2 trillion in private sector defined benefit assets-and that is on prudent measures-the potential for positive impact is huge, given the estimated £240 billion surplus from those 4,500 schemes. Trustees who have stewardship over these assets on behalf of around 9 million scheme members are now being encouraged to make strategic decisions which could reshape some schemes for the future and deliver broader benefits, potentially both to members and to the economy. The Bill is correct in encouraging that to happen. Of course, trustees have significant responsibilities when they assess a scheme’s surplus and whether to it pay out or to preserve it. As the noble Lord, Lord Davies of Brixton, has so often reminded us, a surplus is merely a reserve-a buffer against future bad markets, perhaps. In some schemes, the extent of that surplus...
Now that we have a position so different from the past, with so many schemes now in surplus, would the Government support the idea of mandating the scheme trustees to make sure that they have considered the actuarial advice that could so benefit members? We have a live example of this, whereby the technical actuarial standards TAS 300 were a crucial part of the consideration by the trustees of the Stagecoach scheme, which managed to change the sponsoring employer from Stagecoach to Aberdeen, a big insurer that can underwrite the scheme and has promised to pay an instant increase in member benefits on taking the scheme over and to share all future surpluses, two-thirds with members, with one-third going to Aberdeen. That is a real live example of the new thinking available in the pensions landscape nowadays, which could be so much better for the economy than schemes just looking to buy annuities, which then do not add to member benefits or employer resources or to the productive potential of the economy, which running schemes on could achieve.
I hope that the Minister will see that these amendments could strengthen the Bill and embed discipline where it matters most, at the point of irreversible choices. I beg to move.
My Lords, I shall speak to my Amendments 14, 16, 17 and 18, in my name and that of my noble friend Lord Palmer. It is always a pleasure to follow the noble Baroness, and I thank her for her support, which I am happy to reciprocate. As it is the first time that I have spoken on Report, I reiterate my interest as a trustee of the Parliamentary Contributory Pension Fund. I do not think that this Bill affects that fund, but for clarity I declare it. I also thank the Minister for the engagement that she has had with me and other colleagues-but particularly with me-on this subject. I came away feeling that I had had tea and sympathy, although possibly not with the greatest expectation for the future. But I thank her for engaging with me. We debated this matter at some considerable length in Committee, and I shall not go over it. The key issue in this set of amendments is about permitting, when there is a surplus, that surplus to be fairly used, in part to give some inflationary uplift, if that would be the appropriate thing, to members of a scheme. There is nothing in any of the amendments that mandates that course of action; these are designed to permit it and also perhaps to draw attention to some of the historic injustices, as they might be called. I cannot hear the word “surplus” in relation to pension funds without immediately putting quotation marks around it, as I said in Committee. I was grateful to the noble Lord, Lord Davies, for his suggestion that we really ought to...
I have worked in the pension sphere for far longer than I care to remember, and so-called surpluses have been a big issue throughout. They have come and gone. Sometimes they have been negative surpluses-deficits-but they are still central to the health or otherwise of a pension scheme. They have been totally embedded in my working life, so I hope the House will forgive me if I choose to make a longer contribution on this issue. I support all the amendments in this group. The noble Baroness, Lady Altmann, suggested that I might not like her amendments, and maybe they are a bit unnecessary in principle, but in practice, the idea that trustees should consider all these issues when they make a decision about releasing surplus to the employer is a good one, so I support Amendments 13 and 15. I also support the amendments in the name of the noble Viscount, Lord Thurso. I particularly welcome his Amendment 17, which effectively points out that the existing legislation on the release of surpluses says explicitly that the trustees should do so only when it is in the interests of members. This legislation removes that guarantee. We debated this issue in Committee and we have heard the Government’s argument, which, essentially, is, “We can leave it to the trustees to look after it”. My experience is that that is not a safe basis to rely upon. Some trustees are fine and they do a great job; others do not consider their role to be to help the members. They see their role as very...
I am talking here about the provisions under Section 259 of the Pensions Act 2004 and regulations made under the provisions of the Act-that in certain circumstances, the employer must consult with the recognised trade unions. That includes such things as increasing the retirement age or changing the accrual rate, but also ending or reducing the employer’s liability to make contributions. The decision by the trustees to make a payment to the employer is a decision by the employer. The employer obviously has to make a decision-they have to decide to receive that money-and I believe strongly that a good employer, before accepting that money from the pension scheme, would in any event consult the recognised trade unions. My amendment adds that decision by an employer to the list of issues upon which they have to consult the trade unions. It is straightforward; it is not suggesting anything new. That provision is already there; this would just extend the list of issues upon which consultations have to take place, to include this new development.
Much of the detail of how this is going to be implemented depends on regulations, so I have two questions for my noble friend the Minister. First-and I have to admit that it is quite difficult to interpret the Bill-will regulations under Section 10 be made under the affirmative procedure, and hence come before this House and the Commons? Secondly, will there be consultation on those regulations and when will that take place? To be honest, much of what we are asking for in these amendments could be included in regulations. I will certainly be spending time over the coming months and years making sure that the regulations reflect the fact that the Government have a commitment, in my mind, to ensure that members benefit from the release of surpluses as much as employers.
My Lords, I will speak briefly to some of the amendments in this group. At the outset, I thank all noble Lords who have tabled amendments and contributed to the constructive discussions we have been able to have on these issues. While I will focus my remarks on some of the amendments, we understand the direction of travel intended across this group. Taken together, these amendments largely seek to ensure that the process of releasing surplus funds from defined benefit schemes is carried out on the basis of sound professional advice, in close communication with scheme members and with their interests properly safeguarded. The group also includes a technical amendment from the Government, which tightens up the drafting of the Bill and which we are content to support. Amendment 13 in the name of the noble Baroness, Lady Altmann, would introduce a formal decision-making safeguard before schemes even create the legal power to pay surpluses to employers. In practical terms, it would ensure that trustees have received and considered formal actuarial advice before making such a change to the rules of the scheme. That matters because altering the rules of a scheme to enable surplus extraction has potential implications for the long-term funding position of the scheme and for the security of members’ benefits. Amendment 13 therefore performs two important functions. First, it seeks to ensure that trustees properly understand the impact that surplus distribution could have on scheme...
My Lords, I am grateful to the noble Baroness, Lady Altmann, my noble friend Lord Davies and the noble Viscount, Lord Thurso, for introducing their amendments. During our various deliberations, many noble Lords have highlighted the fact that the level to which a DB scheme is funded is subject to volatility and to changes in the underpinning assumptions used to ensure that schemes remain able to meet the promised pensions. This is something we take seriously as we all want to ensure that the policy aim here can be achieved: for surplus funds to be used to benefit members and employers, but with the right protections so that every member’s pension can be paid. As I have outlined previously, the DB funding code and the underpinning legislation require trustees to aim to maintain a strong funding position. Our changes preserve trustee discretion over surplus release. Crucially, trustees must receive actuarial certification that the scheme meets a prudent funding threshold, and members must be notified before surplus is released. Let us not forget that these changes are simply levelling the playing field, as some schemes can already release surplus. Amendments 16 and 19 would both require a consultation to take place before surplus is released. I understand the wish of noble Lords for the voice of members to be heard when decisions are being taken about releasing surplus. We agree with that observation; that is precisely why the decision to release surplus remains in the hands of...
However, the noble Baroness, Lady Altmann, is right to home in on the underpinning goal of these amendments. We want to make sure that trustees continue to take advice on the potential options for their schemes and keep the scheme’s strategy under regular review. To ensure this, we will continue to work with TPR as it reviews and updates its guidance. We will also engage bodies such as the FCA and, where appropriate, the PRA and the FRC, to ensure alignment across all guidance relating to consideration of alternative options. Taken together, these points demonstrate that the existing framework remains appropriate and continues to deliver what is required without the need for change.
My noble friend Lord Davies asked a couple of specific questions, but before I answer them, I should declare an interest. The noble Viscount, Lord Thurso, mentioned that he is a trustee of the Parliamentary Contributory Pension Fund. Rather more modestly, I am a member of the scheme and therefore I am very nice to him-tea and sympathy are the least I can offer him. I commend him for the work he does on behalf of all of us, and I thank him for it once more. My noble friend Lord Davies asked whether regulations under Clause 10 will be affirmative. They will be affirmative on first use and negative thereafter, so I look forward to a debate with my noble friend when the regulations come up for debate first time round. We will be consulting on them later in the spring, after Royal Assent.
Government Amendment 21 in my name relates to the reforms to give trustees greater flexibility to release surplus from well-funded DB schemes, and I thank the noble Baroness, Lady Stedman-Scott, for her support for this. Amendment 21 is a minor and technical one that corrects an omission in the original wording of the Bill. Clause 10(6) refers to Section 76 but does not specify that this is in relation to the Pensions Act 1995. For clarity, this amendment inserts the words “of the Pensions Act 1995” after “Section 76”.
I am grateful for all noble Lords’ contributions. However, for the reasons I have outlined, I hope the noble Baroness feels able to withdraw her amendment and I ask that noble Lords support Amendment 21 in my name.
My Lords, I thank the Minister for her thoughtful and considered response. I also thank all noble Lords who have supported my amendment, including the noble Lord, Lord Davies, and the noble Viscount, Lord Thurso. I had hoped that the noble Lords on the Opposition Front Bench might be willing to support me if I were to press this to a vote, but it sounds as if that is not the case. I hope that the Government will be successful in ensuring that when pension scheme surpluses are paid out, members are considered carefully. I know that the Minister considered this would be unnecessary bureaucracy. I have to say that it is a requirement, but one that is not always adhered to, and the mechanisms for overseeing it do not seem to have been working. More particularly, what I had hoped this amendment could help achieve was not only helping the trustees meet member benefits but, in many circumstances, potentially improving member benefits beyond what is currently payable. Yes, they need appropriate advice but, given the state of pension schemes, there is a significant opportunity to improve the amount of money paid to members alongside the decisions to pay out surpluses. Therefore, if the noble Viscount, Lord Thurso, decides to move Amendment 14 and test the opinion of the House, I certainly would be minded to support him. However, I beg leave to withdraw Amendment 13.
Amendment 13 withdrawn.
My Lords, before we go any further, I am afraid we will need to adjourn during pleasure for a few minutes. There has been an incident which means we do not have full access to the areas of the House that are needed to get to the voting Lobbies. I suggest we adjourn during pleasure and keep an eye on the annunciator. It should be a few minutes, but I do not want to specify a time because we do not know quite how long it will take to clear up. Apologies for this inconvenience, but I think it is for the best.
Sitting suspended.