Lords Chamber
15:29
The Lord Bishop of Manchester (Bishops)
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The Lord Bishop of Manchester (Bishops)
introduced by the office for students on the 1st of August last year requires English universities to publish and implement cohesive, comprehensive policies to prevent, investigate and tackle incidents of harassment against students. It's absolutely vital that this work continues. But my noble friend is right. We have to draw attention to
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the rise in anti-Semitism. This has been a significant issue in Manchester for all my time issue in Manchester for all my time as Bishop, and I'm glad we're having this chance to consider it this afternoon. I wonder if I might ask the noble Lord, the Minister, ask the noble Lord, the Minister, what assessments being made of the extent to which external actors we've heard about university lecturers, but external actors, lecturers, but external actors, maybe even foreign governments, are playing in fuelling this.
And to what extent he sees that the what extent he sees that the multi-faith chaplaincy teams at many of our universities have can be part of the means of addressing it.
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the rise in anti-Semitism. This has been a significant issue in Manchester for all my time issue in Manchester for all my time as Bishop, and I'm glad we're having this chance to consider it this afternoon. I wonder if I might ask the noble Lord, the Minister, ask the noble Lord, the Minister, what assessments being made of the extent to which external actors we've heard about university lecturers, but external actors, lecturers, but external actors, maybe even foreign governments, are playing in fuelling this.
And to what extent he sees that the what extent he sees that the multi-faith chaplaincy teams at many of our universities have can be part of the means of addressing it.
15:29
Lord Collins of Highbury, Parliamentary Under-Secretary (Foreign, Commonwealth and Development Office) (Labour)
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Lord Collins of Highbury, Parliamentary Under-Secretary (Foreign, Commonwealth and Development Office) (Labour)
I think the noble right reverend Prelate raises a really important point. And certainly, you know, after the outrageous events in Manchester, the Bridget, my hon. Friend Bridget Phillipson wrote to all universities, drawing attention to their responsibility to address this issue. But our universities are world class, have a world class reputation, and that makes them the prime target for foreign states and hostile actors, as we are seeing, you know, at this moment in time who seek to erode the reputation by shaping or censuring what universities can offer.
And we're tackling that threat. We are investing 3 million to bolster existing support and access to expert advice on national security risk management, including a new academic interference reporting route and new guidance.
And we're tackling that threat. We are investing 3 million to bolster existing support and access to expert advice on national security risk management, including a new academic interference reporting route and new guidance.
15:30
Lord Polak (Conservative)
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Lord Polak (Conservative)
Minister. >> My Lords, the noble Lord. The Minister will be aware that. >> Place.
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Place. The fact that the Union of Jewish Students has been around for over 100 years to look after the over 100 years to look after the welfare of the Jewish students on campus. The fact is that the Louis Danker, the chair, the Minister, the Louis Danker, the chair of UJS, has to write a report, time for change, when he should be looking after the welfare of. And the fun of Jewish students on campus. My Lords, in this report, 82% of students regard calls to globalise the Intifada as anti-Semitic.
I'm unsure what the other 18% are thinking, but my Lord's Jewish students, the Jewish community, hear that phrase as a call for violence against the Jewish community. So does the noble Lord, the Minister, accept that allowing such rhetoric on campus and on our streets undermines the safety of Jews throughout this country? So what practical like others have asked, what practical steps can HMG take to rid us of this despicable intimidation?
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Place. The fact that the Union of Jewish Students has been around for over 100 years to look after the over 100 years to look after the welfare of the Jewish students on campus. The fact is that the Louis Danker, the chair, the Minister, the Louis Danker, the chair of UJS, has to write a report, time for change, when he should be looking after the welfare of. And the fun of Jewish students on campus. My Lords, in this report, 82% of students regard calls to globalise the Intifada as anti-Semitic.
I'm unsure what the other 18% are thinking, but my Lord's Jewish students, the Jewish community, hear that phrase as a call for violence against the Jewish community. So does the noble Lord, the Minister, accept that allowing such rhetoric on campus and on our streets undermines the safety of Jews throughout this country? So what practical like others have asked, what practical steps can HMG take to rid us of this despicable intimidation?
15:32
Lord Collins of Highbury, Parliamentary Under-Secretary (Foreign, Commonwealth and Development Office) (Labour)
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Lord Collins of Highbury, Parliamentary Under-Secretary (Foreign, Commonwealth and Development Office) (Labour)
Yeah. >> Well, I agree with the noble Lord that some well, often people's Lord that some well, often people's political views about the Middle East are actually used in a very abusive way, which I find personally very offensive. But it doesn't actually stop individuals saying that they don't agree with Zionism. They don't agree with the state of Israel that they do blah, blah, blah. It's not illegal to express those opinions. What? It is illegal, very much illegal, is to incite the hatred that we've seen evidenced in this report.
And that's where we need to take clear action. We I mean, I read Lord Fink, I'm sorry to keep quoting Lord Finkelstein. I'm trying to prompt him to get up. But, you know, he pointed out to me that his own father or grandfather, I think in one of his articles was very much an anti-Zionist. And Zionism wasn't a tradition in the family, but the experience of Jewish communities throughout the world after the Second World War and the horrendous Holocaust has meant that actually the state of Israel represents something else.
It represents that security, that place that they can go to. When faced with the horrendous anti-Semitism we're seeing on the rise. So I agree with the noble Lord, but I do think we have to be very clear about free speech and balancing free speech with addressing the horrible things of anti-Semitism can give rise to.
And that's where we need to take clear action. We I mean, I read Lord Fink, I'm sorry to keep quoting Lord Finkelstein. I'm trying to prompt him to get up. But, you know, he pointed out to me that his own father or grandfather, I think in one of his articles was very much an anti-Zionist. And Zionism wasn't a tradition in the family, but the experience of Jewish communities throughout the world after the Second World War and the horrendous Holocaust has meant that actually the state of Israel represents something else.
It represents that security, that place that they can go to. When faced with the horrendous anti-Semitism we're seeing on the rise. So I agree with the noble Lord, but I do think we have to be very clear about free speech and balancing free speech with addressing the horrible things of anti-Semitism can give rise to.
15:33
Lord Palmer of Childs Hill (Liberal Democrat)
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Lord Palmer of Childs Hill (Liberal Democrat)
Lord Stone Minister. >> That university Chancellors complain about having to balance rights. We'll hear from Lib Dems. rights. We'll hear from Lib Dems. Thank you. We'll hear from the Lib Dems. Thank you very much. We'll hear from the.
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Thank you. I wasn't intended to speak, but when I listened to the speak, but when I listened to the Minister linking over and over again the problems in the Middle again the problems in the Middle East with anti-Semitism, I am really disappointed because they are really two separate, two are really two separate, two separate things. There is an incredible rise in anti-Semitism where Jews cannot go round in the street wearing, head covering or wearing a Star of David on the Magen David.
That that is the problem. And when the Minister talks about the confusion because of events in the middle in the Middle East, it is, it is, it is it is not the same thing. Because when they talk of Zionism, Zionism can mean many different things to different people. The Zionism I believe in is that there should be a homeland for the Jews. And with the. The events of October last, 2023, there has to be a homeland for the Jews.
That is my Zionism. It is nothing to do with treatment of Palestinians or that because Palestinians have rights as well. And the Minister, in his reply constantly muddles up the. To antisemitism in this country needs to be handled, and I'd like to know what the government is going to do about it.
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Thank you. I wasn't intended to speak, but when I listened to the speak, but when I listened to the Minister linking over and over again the problems in the Middle again the problems in the Middle East with anti-Semitism, I am really disappointed because they are really two separate, two are really two separate, two separate things. There is an incredible rise in anti-Semitism where Jews cannot go round in the street wearing, head covering or wearing a Star of David on the Magen David.
That that is the problem. And when the Minister talks about the confusion because of events in the middle in the Middle East, it is, it is, it is it is not the same thing. Because when they talk of Zionism, Zionism can mean many different things to different people. The Zionism I believe in is that there should be a homeland for the Jews. And with the. The events of October last, 2023, there has to be a homeland for the Jews.
That is my Zionism. It is nothing to do with treatment of Palestinians or that because Palestinians have rights as well. And the Minister, in his reply constantly muddles up the. To antisemitism in this country needs to be handled, and I'd like to know what the government is going to do about it.
15:35
Lord Collins of Highbury, Parliamentary Under-Secretary (Foreign, Commonwealth and Development Office) (Labour)
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Lord Collins of Highbury, Parliamentary Under-Secretary (Foreign, Commonwealth and Development Office) (Labour)
Yeah, yeah. >> Well, can I be very clear? I hope noble Lords were listening to what I say. I was not actually conflating the two. I think there has to be a very clear separation. And, you know, let's not confuse those two. I've been a strong supporter of the state of Israel for many, many years. I was an active supporter of polar Zion. So my own views are very, very clear. But I do think that we actually have to, you know, we are more effective by addressing anti-Semitism for calling out what Baroness Deech said it was.
It's something that's been around for 2000 years and has got nothing to do with the situation in the Middle East. But people are using the sort of language, you know, that they're inciting hatred by using the Middle East. That's what I was trying to
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convey. So I hope the noble Lord will understand. My position is very, very clear. Does that concludes questions
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Does that concludes questions for today. And perhaps we might take a minute for people to leave My My Lord's My Lord's motion My Lord's motion to My Lord's motion to agree. My Lord's motion to agree. The report of the Conduct Committee. The conduct of Lord Chadlington Lord Kakkar.
It's something that's been around for 2000 years and has got nothing to do with the situation in the Middle East. But people are using the sort of language, you know, that they're inciting hatred by using the Middle East. That's what I was trying to
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convey. So I hope the noble Lord will understand. My position is very, very clear. Does that concludes questions
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Does that concludes questions for today. And perhaps we might take a minute for people to leave My My Lord's My Lord's motion My Lord's motion to My Lord's motion to agree. My Lord's motion to agree. The report of the Conduct Committee. The conduct of Lord Chadlington Lord Kakkar.
15:37
Business of the House
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Business of the House
My Lords, I beg to move the motion standing in my name on the Order Paper. My Lords, this report is the outcome of a detailed investigation. The third such investigation into Lord Chadlington interactions with Ministers and advisers in the Department of Health and Social Care during the Covid 19 pandemic. Given that Lord Chadlington retired from the House following publication of the committee's report, there is no motion to suspend him on the Order Paper and I shall not take up the the House's time by setting out the facts of the case.
However, Lord Chadlington has sent communications to noble Lords following his retirement, in which he accused the conduct Committee of procedural unfairness and of ignoring points raised in an opinion prepared on the instructions of his solicitors by the noble and learned Lord Lord Goldsmith. I want to assure the House that, far from ignoring these points of process, the Committee considered them with great care, but we did not agree with them for reasons that are set out in detail in our report.
My Lords, our decision to dismiss Lord Chadlington appeal was based on the facts and on the evidence. I beg to move.
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My Lords understanding order 68. No debate is allowed on this motion. I must therefore now put the question. The question is that this motion be agreed to. As many as are of that opinion will say content. of that opinion will say content. To the contrary, not content. The
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To the contrary, not content. The contents have it. The Pension Schemes Bill Baroness Sherlock. My Lords, I beg to move that
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My Lords, I beg to move that this report be now received. The question is that this report be now received.
However, Lord Chadlington has sent communications to noble Lords following his retirement, in which he accused the conduct Committee of procedural unfairness and of ignoring points raised in an opinion prepared on the instructions of his solicitors by the noble and learned Lord Lord Goldsmith. I want to assure the House that, far from ignoring these points of process, the Committee considered them with great care, but we did not agree with them for reasons that are set out in detail in our report.
My Lords, our decision to dismiss Lord Chadlington appeal was based on the facts and on the evidence. I beg to move.
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My Lords understanding order 68. No debate is allowed on this motion. I must therefore now put the question. The question is that this motion be agreed to. As many as are of that opinion will say content. of that opinion will say content. To the contrary, not content. The
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To the contrary, not content. The contents have it. The Pension Schemes Bill Baroness Sherlock. My Lords, I beg to move that
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My Lords, I beg to move that this report be now received. The question is that this report be now received.
15:39
Lord Fuller (Conservative)
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Lord Fuller (Conservative)
Order, order. Order. now received? As many as are of that opinion will say content Of the contrary, not content. The contents have it. Clause one. Amendment one.
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Amendment one. Lord Fuller was a pleasure to open this Report stage a debate on the pensions Bill, and as we start, we should be clear that this Bill's success will be measured on how it makes it easier for people to take personal responsibility for their futures, to make their savings secure, whilst permitting appropriate risk taking and capital to grow the economy. I suppose I should declare an interest. I've been a trustee of the Norfolk scheme for well over 20 years.
Pension scheme member the Local Government Pension Scheme Advisory Board since inception. In fact, it's my. I retire next Monday through the period I've served on the Firefighters pension scheme. Chair and vice chair of the Local Government Pension Committee, which is the body that represents employers in the scheme. So my Lords, today is about the local Government pension scheme. The LGPS is different from most of the other public schemes because, well, we put money aside for our retirement and that's important.
So my amendments to which one, two and five, to which Baroness Altmann has added her name, relate to the overarching structural organisation of the 87 pools schemes into a number of pools. Can we just dispose of amendment number one first? In my personal experience, just limiting the list of consultants to the FCA would be insufficient. And I think it's probably there's a misunderstanding from the Department that actually the government Actuary's Department and the pensions regulator really do get involved there. And whilst I wouldn't press that to a vote, I think it's pretty straightforward.
And if we don't have the pensions regulator and Gad who look after the 50 or so other things apart from investment, then the bill would be wholly. Now I've got my reservations about the government interference in the structure of the pools. It's only damages the purity of the relationship and accountability to act in. Of the trustees, to act in members best interests. Rachel Reeves will be a footnote in history by the time the cows come home for the consequences of some of the.
Of the provisions in Group one. The approach mandating pools has already damaged the scheme for no good reason. The exemplar access scheme was told to disband, had 40 billion assets under management, but that wasn't good enough. They had access to the best FCA global professionals in the City of London, and now we're being forced to join another provincial pool that doesn't even have an FCA qualification, for goodness sake. Now, elsewhere in this bill, there are restrictions that prevent a scheme from belonging to one more than one pool, for reasons I will now explain, this incomprehensible restriction will mean the government will athwart its own ambition to bring its asset to the LGPS assets to bear from investing in other wise, appropriate investment infrastructure opportunities outside their own patch.
My amendment would allow any good opportunity that had been signed off, so to speak, by one LGPS fund to be available to all the others, whether they were in that pool or not, because the LGPS is the closest thing we have to a national wealth fund. Its total assets under management last year. So two years ago, but more than 390,000,000,000 billion, much more than that. And these things change. But by some measure, it's the world's fourth or fifth largest scheme.
6.68 million Britons belong to their scheme. It may be a large scheme, but the members are not fat cats. The typical member is a 47 year old person who earns 18,000 a year and may, in due course, after a period of very long service, attain a pension of 5000. In the next group. I'm going to refer to this number, but investment returns for 2024 are. The LGPS scheme were 8.9%, with a broad asset allocation of equities, bonds, property and so forth, and investment costs.
The management costs vary by much less than inflation 2.9%. In fact, the scheme that I'm a member of in Norfolk has a cost per member of less than £20. It's half what anybody else. So when I came to the scheme in 2007, there were 1.8 billion of assets, now nearly 6 billion. And as I leave the trusteeship in May, I'll look back with satisfaction. It's a British success story. And my noble friend, the noble Lord, Lord Davis, trumpeted this at committee.
And you have to ask, with all this interference, will this fettering of the ability of the trustees to put the members best interests first? What is the problem the government is trying to solve here now? I make no apology for rehearsing this as I can report. Stage the success story that is the LGPS should play an important part of investing and renew our nation, renewing our nation. And I'm not against scale. I mean, I know there are some schemes at 500 million.
They do need to bulk up, although I'm bound to say one of the smaller schemes at the Orkneys has got the best performance of all the schemes in the whole scheme, and there's something to be learned there. And my amendment two would allow a scheme to be a member of more than one pool asset pool. And I've got in mind here 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 for the whole lot, 40 billion.
Pretty chunky piece of change. But hang on. What's this? It's going to be jam spread across half a dozen half a dozen pools, 4 or 5 billion each. Well, it's not it's not even a needle mover. You know, a billion doesn't go far nowadays, which would be 20%, as anyone who those people promoting the Lower Thames Crossing, a critical piece of infrastructure will tell you half a billion being spent on fees before a brick has been laid, and with only 4 or 5 billion per SKUs.
And you can't make those chunky investments because it would be too big and give the fund indigestion. It would be more than sensibly could be allocated by the trustees of a single pool driving a concentration risk. So if the schemes couldn't club together, as my amendment contemplates, the local pool would have to have a 20% asset allocation to a single piece of infrastructure in their patch. Whereas a nonsense, it breaks every investment rule in the book concentration, risk, lack of diversity.
It cannot be right, and the government prevents all the other schemes from jumping on the bandwagon of an otherwise really good opportunity. The effect is that a pensions pool in the South wouldn't be able to invest in an infrastructure opportunity in the North. I mean, how crazy is that? What about border effects? Because if you've got a pool, there will be a border somewhere. And preventing a fund from investing just over the border, possibly the other side of the street.
And those of us who've been involved in local government a long time know there's always a street between boroughs where the bins are collected on recycling rates. This bill and my amendment seeks to get rid of these edge effects. The government says it wants scale. Well, let's give it to them. But it only happens by allowing the scheme in aggregate. The closest thing we have to a national wealth fund to have that scale and heft, to make those chunky in investments.
So I know the DWP Minister will want to hold the MHCLG. I think that's the right way. Other than in the previous debate, the noble Lord got in a muddle but calmed the government. See the nonsense and jeopardy here by preventing the LGPS structurally by law, from investing in infrastructure that the Chancellor says she wants. But there's a further complication in another bill before your Lordships' House. We will shortly contemplate local government reorganisation, and I'll do a bit of work on this, and I can certainly contemplate that the mergers of county of authorities across county boundaries will happen in Wiltshire is already unitised, but it's not unthinkable for Swindon to be placed in Oxfordshire or passed in Berkshire.
And paradoxically, 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'd arbitrarily fall on the other side of a boundary. That's nuts. So to summarise, there really should be a single national specialist infrastructure pool. If we're serious about the LGPS investing in our long term future. Translation all the pools should be able to join, and particularly for a southern pool to invest in the north, vice versa, and other pools to invest just over the boundary in in opportunities which their members go.
If we don't, if we do that, if we don't do that, if we don't permit this, it's going to contribute to poorer incomes in retirement damages, trust and confidence in the pension scheme that's already on shaky ground. I beg to move those.
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Amendment one. Lord Fuller was a pleasure to open this Report stage a debate on the pensions Bill, and as we start, we should be clear that this Bill's success will be measured on how it makes it easier for people to take personal responsibility for their futures, to make their savings secure, whilst permitting appropriate risk taking and capital to grow the economy. I suppose I should declare an interest. I've been a trustee of the Norfolk scheme for well over 20 years.
Pension scheme member the Local Government Pension Scheme Advisory Board since inception. In fact, it's my. I retire next Monday through the period I've served on the Firefighters pension scheme. Chair and vice chair of the Local Government Pension Committee, which is the body that represents employers in the scheme. So my Lords, today is about the local Government pension scheme. The LGPS is different from most of the other public schemes because, well, we put money aside for our retirement and that's important.
So my amendments to which one, two and five, to which Baroness Altmann has added her name, relate to the overarching structural organisation of the 87 pools schemes into a number of pools. Can we just dispose of amendment number one first? In my personal experience, just limiting the list of consultants to the FCA would be insufficient. And I think it's probably there's a misunderstanding from the Department that actually the government Actuary's Department and the pensions regulator really do get involved there. And whilst I wouldn't press that to a vote, I think it's pretty straightforward.
And if we don't have the pensions regulator and Gad who look after the 50 or so other things apart from investment, then the bill would be wholly. Now I've got my reservations about the government interference in the structure of the pools. It's only damages the purity of the relationship and accountability to act in. Of the trustees, to act in members best interests. Rachel Reeves will be a footnote in history by the time the cows come home for the consequences of some of the.
Of the provisions in Group one. The approach mandating pools has already damaged the scheme for no good reason. The exemplar access scheme was told to disband, had 40 billion assets under management, but that wasn't good enough. They had access to the best FCA global professionals in the City of London, and now we're being forced to join another provincial pool that doesn't even have an FCA qualification, for goodness sake. Now, elsewhere in this bill, there are restrictions that prevent a scheme from belonging to one more than one pool, for reasons I will now explain, this incomprehensible restriction will mean the government will athwart its own ambition to bring its asset to the LGPS assets to bear from investing in other wise, appropriate investment infrastructure opportunities outside their own patch.
My amendment would allow any good opportunity that had been signed off, so to speak, by one LGPS fund to be available to all the others, whether they were in that pool or not, because the LGPS is the closest thing we have to a national wealth fund. Its total assets under management last year. So two years ago, but more than 390,000,000,000 billion, much more than that. And these things change. But by some measure, it's the world's fourth or fifth largest scheme.
6.68 million Britons belong to their scheme. It may be a large scheme, but the members are not fat cats. The typical member is a 47 year old person who earns 18,000 a year and may, in due course, after a period of very long service, attain a pension of 5000. In the next group. I'm going to refer to this number, but investment returns for 2024 are. The LGPS scheme were 8.9%, with a broad asset allocation of equities, bonds, property and so forth, and investment costs.
The management costs vary by much less than inflation 2.9%. In fact, the scheme that I'm a member of in Norfolk has a cost per member of less than £20. It's half what anybody else. So when I came to the scheme in 2007, there were 1.8 billion of assets, now nearly 6 billion. And as I leave the trusteeship in May, I'll look back with satisfaction. It's a British success story. And my noble friend, the noble Lord, Lord Davis, trumpeted this at committee.
And you have to ask, with all this interference, will this fettering of the ability of the trustees to put the members best interests first? What is the problem the government is trying to solve here now? I make no apology for rehearsing this as I can report. Stage the success story that is the LGPS should play an important part of investing and renew our nation, renewing our nation. And I'm not against scale. I mean, I know there are some schemes at 500 million.
They do need to bulk up, although I'm bound to say one of the smaller schemes at the Orkneys has got the best performance of all the schemes in the whole scheme, and there's something to be learned there. And my amendment two would allow a scheme to be a member of more than one pool asset pool. And I've got in mind here 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 for the whole lot, 40 billion.
Pretty chunky piece of change. But hang on. What's this? It's going to be jam spread across half a dozen half a dozen pools, 4 or 5 billion each. Well, it's not it's not even a needle mover. You know, a billion doesn't go far nowadays, which would be 20%, as anyone who those people promoting the Lower Thames Crossing, a critical piece of infrastructure will tell you half a billion being spent on fees before a brick has been laid, and with only 4 or 5 billion per SKUs.
And you can't make those chunky investments because it would be too big and give the fund indigestion. It would be more than sensibly could be allocated by the trustees of a single pool driving a concentration risk. So if the schemes couldn't club together, as my amendment contemplates, the local pool would have to have a 20% asset allocation to a single piece of infrastructure in their patch. Whereas a nonsense, it breaks every investment rule in the book concentration, risk, lack of diversity.
It cannot be right, and the government prevents all the other schemes from jumping on the bandwagon of an otherwise really good opportunity. The effect is that a pensions pool in the South wouldn't be able to invest in an infrastructure opportunity in the North. I mean, how crazy is that? What about border effects? Because if you've got a pool, there will be a border somewhere. And preventing a fund from investing just over the border, possibly the other side of the street.
And those of us who've been involved in local government a long time know there's always a street between boroughs where the bins are collected on recycling rates. This bill and my amendment seeks to get rid of these edge effects. The government says it wants scale. Well, let's give it to them. But it only happens by allowing the scheme in aggregate. The closest thing we have to a national wealth fund to have that scale and heft, to make those chunky in investments.
So I know the DWP Minister will want to hold the MHCLG. I think that's the right way. Other than in the previous debate, the noble Lord got in a muddle but calmed the government. See the nonsense and jeopardy here by preventing the LGPS structurally by law, from investing in infrastructure that the Chancellor says she wants. But there's a further complication in another bill before your Lordships' House. We will shortly contemplate local government reorganisation, and I'll do a bit of work on this, and I can certainly contemplate that the mergers of county of authorities across county boundaries will happen in Wiltshire is already unitised, but it's not unthinkable for Swindon to be placed in Oxfordshire or passed in Berkshire.
And paradoxically, 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'd arbitrarily fall on the other side of a boundary. That's nuts. So to summarise, there really should be a single national specialist infrastructure pool. If we're serious about the LGPS investing in our long term future. Translation all the pools should be able to join, and particularly for a southern pool to invest in the north, vice versa, and other pools to invest just over the boundary in in opportunities which their members go.
If we don't, if we do that, if we don't do that, if we don't permit this, it's going to contribute to poorer incomes in retirement damages, trust and confidence in the pension scheme that's already on shaky ground. I beg to move those.
15:49
Baroness Noakes (Conservative)
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Baroness Noakes (Conservative)
Clause one, page two, line 31 at end. Insert the words printed on end. Insert the words printed on the Marshalled List. My Lord sir, I. >> Have a moment. For in this group.
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Have a moment. For in this group. This concerns mandation, which we will be debating more extensively later this week in connection with later this week in connection with defined contribution schemes. Amendment four seeks to ensure that Mandation cannot apply to the LGPS. While this amendment should be easy for the government to accept, this Mandation amendment, unlike the ones which we shall be debating on Thursday, reflects what the government have said is their policy. What was one of. The bill 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 two says that any clause one regulations must not may must make provision about the management of the scheme's assets and funds. As is usual with regulation making powers, they are unconstrained and while the clause two clause two lists some of the things which could be included in the regulations, clause two contains no restrictions on the use of the power. I've tabled a moment for to ensure that the power cannot be used to tell local government schemes to invest in particular assets, asset classes or location of investment.
I firmly believe that fiduciary duties are paramount and should never be owned by the government, whether in relation to public sector schemes like the LGPS or private sector ones, which we will be debating on Thursday, the noble Lord Lord Katz said in grand committee on the 12th of January. To be absolutely clear, we are not mandating asset pools to invest in certain ways in the LGPS. The power to direct pools is a backstop power. It does not allow government to mandate investment in specific assets or asset classes.
My Lords, the issue is not whether whether or not the power is a backstop power, or whether the government intend to use it. The issue is whether the bill could be used, whether by this government or some future government, to mandate investments in the LGPS. Clause two is clear. Regulations under clause one must include provision about the management of the funds and other assets for which the scheme managers are responsible. Subsection two goes on to require an investment strategy, and subsections three and four allow the Secretary of State to specify what is in that strategy, including strategic asset allocation.
My Lords, on any ordinary interpretation, this adds up to very considerable power over LGPS investments. In the other place, the government removed from the original bill a more explicit power of direction, which would have allowed the Secretary of State to direct LGPS investment activities. And that was pretty shocking, and the government sensibly removed it before the bill arrived in your Lordships House. That removal, however, does not mean that the bill we now have before us could not be used to mandate investments using the powers that remain in clauses one and two.
I hope that the government will agree that certainty is required in this area, and my amendment would put matters beyond doubt if the government do not accept amendment four. I am currently minded to test the opinion of the House when the amendment is reached. amendment is reached.
**** Possible New Speaker ****
Have a moment. For in this group. This concerns mandation, which we will be debating more extensively later this week in connection with later this week in connection with defined contribution schemes. Amendment four seeks to ensure that Mandation cannot apply to the LGPS. While this amendment should be easy for the government to accept, this Mandation amendment, unlike the ones which we shall be debating on Thursday, reflects what the government have said is their policy. What was one of. The bill 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 two says that any clause one regulations must not may must make provision about the management of the scheme's assets and funds. As is usual with regulation making powers, they are unconstrained and while the clause two clause two lists some of the things which could be included in the regulations, clause two contains no restrictions on the use of the power. I've tabled a moment for to ensure that the power cannot be used to tell local government schemes to invest in particular assets, asset classes or location of investment.
I firmly believe that fiduciary duties are paramount and should never be owned by the government, whether in relation to public sector schemes like the LGPS or private sector ones, which we will be debating on Thursday, the noble Lord Lord Katz said in grand committee on the 12th of January. To be absolutely clear, we are not mandating asset pools to invest in certain ways in the LGPS. The power to direct pools is a backstop power. It does not allow government to mandate investment in specific assets or asset classes.
My Lords, the issue is not whether whether or not the power is a backstop power, or whether the government intend to use it. The issue is whether the bill could be used, whether by this government or some future government, to mandate investments in the LGPS. Clause two is clear. Regulations under clause one must include provision about the management of the funds and other assets for which the scheme managers are responsible. Subsection two goes on to require an investment strategy, and subsections three and four allow the Secretary of State to specify what is in that strategy, including strategic asset allocation.
My Lords, on any ordinary interpretation, this adds up to very considerable power over LGPS investments. In the other place, the government removed from the original bill a more explicit power of direction, which would have allowed the Secretary of State to direct LGPS investment activities. And that was pretty shocking, and the government sensibly removed it before the bill arrived in your Lordships House. That removal, however, does not mean that the bill we now have before us could not be used to mandate investments using the powers that remain in clauses one and two.
I hope that the government will agree that certainty is required in this area, and my amendment would put matters beyond doubt if the government do not accept amendment four. I am currently minded to test the opinion of the House when the amendment is reached. amendment is reached.
15:53
Baroness Bowles of Berkhamsted (Liberal Democrat)
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Baroness Bowles of Berkhamsted (Liberal Democrat)
My Lords, I'll speak to amendments two and five which address the same underlying issue, whether pooling an expertise in local government pension schemes is intended to support good investment decisions or to constrain them. And I'll also speak in support of amendment four, to which I added my name. Now, nobody disputes that there is can be value in scale, but scale does not require exclusivity. Nothing in the case for pooling requires funds to confined to a single pool, unable to access specialist expertise developed elsewhere, the LGPS is a federation of.
I think it's 89 funds with different demographics, liabilities and investment strategies, and it's entirely foreseeable. Indeed, it's already happening that one pool will develop a particular strength, say an infrastructure, another in renewables, another in local investment opportunities. Or, as has already been outlined, it may be that the investment opportunity is large and is only accessible by more than one joining together. So why should a fund be prevented from accessing that expertise or that scale, simply because it sits in a different pool? I mean, looking at it from the non scale end, I myself have personally spoken to fund managers who wanted to invest local to support infrastructure of local scale, but who do not want all that exposure in their own area for reasons of diversification.
They've had their fingers burned with shopping centres. The current drafting would make that unnecessarily difficult. At committee, the government were clear that they want to avoid forced or value destructive transfers of assets between full pools, allowing funds to participate in more than one pool and allowing cross pool investment is one of the simplest ways to avoid exactly that. The fund can access a specialist vehicle without having to replicate it internally or move assets unnecessarily. That's a win for the scheme members.
The purpose of pooling was to broaden access to expertise, not to narrow it. It was to create economies of scale, not to create silos, and it was to support better long term investment decisions, not to restrict the routes through which those decisions can be implemented. The noble Lord Fuller has reminded us of many of these things, as he did in committee, and the LGPS is a British success story, delivering strong returns, low costs and high efficiency for 6.7 million members.
His warning was and is that the bill risks fettering the independence of schemes to make the best long term decisions for their members, and these amendments go directly to that point, and I think it would be beneficial if the government could recognise this. I really can't see what it takes away, and therefore, I would suggest that the government seriously considers adopting these amendments. I think that they're modest but important. They don't weaken pooling, they strengthen it. They don't undermine scale, they enhance it, and they do not challenge the government's policy direction.
They simply ensure that the LGPS can operate as a coherent system rather than a set of sealed compartments. So I do hope that the Minister will see these as constructive corrections to that support for duty, duty, improve efficiency and help deliver the very outcomes the government say they want. I now turn to amendment four, and I think noble Baroness Brady notes it already explained in detail why that is a good amendment, and I. And we support it on these benches.
This is a safeguard to make sure that the same kind of mandation that this bill contains for default pension funds does not creep across through regulations into LGPS. It may not be the intention now, but as elsewhere in this bill, there aren't safeguards against future intentions of. We don't know who. In a change of circumstances, and it is really a very bad thing in legislation to continually have these open abilities to make regulations billed as doing one thing, but completely open sometimes to do almost the opposite.
So the precedent has been set elsewhere in the bill by the drafting. And no matter how it ends up, we need to be certain that it can't creep into local government. And therefore, I support an amendment for and we will support the noble Baroness, Lady Noakes, if she's mindful to divide the house.
I think it's 89 funds with different demographics, liabilities and investment strategies, and it's entirely foreseeable. Indeed, it's already happening that one pool will develop a particular strength, say an infrastructure, another in renewables, another in local investment opportunities. Or, as has already been outlined, it may be that the investment opportunity is large and is only accessible by more than one joining together. So why should a fund be prevented from accessing that expertise or that scale, simply because it sits in a different pool? I mean, looking at it from the non scale end, I myself have personally spoken to fund managers who wanted to invest local to support infrastructure of local scale, but who do not want all that exposure in their own area for reasons of diversification.
They've had their fingers burned with shopping centres. The current drafting would make that unnecessarily difficult. At committee, the government were clear that they want to avoid forced or value destructive transfers of assets between full pools, allowing funds to participate in more than one pool and allowing cross pool investment is one of the simplest ways to avoid exactly that. The fund can access a specialist vehicle without having to replicate it internally or move assets unnecessarily. That's a win for the scheme members.
The purpose of pooling was to broaden access to expertise, not to narrow it. It was to create economies of scale, not to create silos, and it was to support better long term investment decisions, not to restrict the routes through which those decisions can be implemented. The noble Lord Fuller has reminded us of many of these things, as he did in committee, and the LGPS is a British success story, delivering strong returns, low costs and high efficiency for 6.7 million members.
His warning was and is that the bill risks fettering the independence of schemes to make the best long term decisions for their members, and these amendments go directly to that point, and I think it would be beneficial if the government could recognise this. I really can't see what it takes away, and therefore, I would suggest that the government seriously considers adopting these amendments. I think that they're modest but important. They don't weaken pooling, they strengthen it. They don't undermine scale, they enhance it, and they do not challenge the government's policy direction.
They simply ensure that the LGPS can operate as a coherent system rather than a set of sealed compartments. So I do hope that the Minister will see these as constructive corrections to that support for duty, duty, improve efficiency and help deliver the very outcomes the government say they want. I now turn to amendment four, and I think noble Baroness Brady notes it already explained in detail why that is a good amendment, and I. And we support it on these benches.
This is a safeguard to make sure that the same kind of mandation that this bill contains for default pension funds does not creep across through regulations into LGPS. It may not be the intention now, but as elsewhere in this bill, there aren't safeguards against future intentions of. We don't know who. In a change of circumstances, and it is really a very bad thing in legislation to continually have these open abilities to make regulations billed as doing one thing, but completely open sometimes to do almost the opposite.
So the precedent has been set elsewhere in the bill by the drafting. And no matter how it ends up, we need to be certain that it can't creep into local government. And therefore, I support an amendment for and we will support the noble Baroness, Lady Noakes, if she's mindful to divide the house.
15:59
Baroness Altmann (Non-affiliated)
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Baroness Altmann (Non-affiliated)
My Lords, I have added my name to amendments two, four and five, so I will speak to those. But I do support the noble Lord Fuller in his amendment one. The addition of the Pensions Regulator in particular is very important. Alongside the FCA, I must declare my interest as a non-executive director of a Pensions Administration company and also a board advisor to a pensions DC master Trust. Amendment two and five are really important in the context of the Local Government pension scheme.
My Lords, the LGPS is a very unusual type of defined benefit scheme. It's not like any of the others which are funded because it is underwritten by the government. It doesn't pay a levy to the Pension Protection Fund. The government completely underwrites all the liabilities. So of course, the trustees are able perhaps to feel that they can take more risk than a defined benefit scheme, which is only supported by an employer who may or may not fail, and the members may end up in the PPF.
Having said that, my Lords, unless the government wishes to change the local government pension scheme into another unfunded public sector scheme and just take all the assets in which, of course, it could do, surely it is important to ensure that the trustees can make investment decisions that they believe are best, rather than government, suggesting it knows better and needs to tell them what to do. Now. Both amendments two and five are trying to restrict the ways in which the Local Government Pension scheme can invest, so that they have to choose to belong to one asset pool, and that's it.
They can't participate in another pool, even if they feel that that other pool has some particularly attractive attributes. And I do understand the government's intent that it would like pension schemes to support both local projects and, of course, national projects, as do I, but it shouldn't be that you can only support the local projects that happen to be part of the asset pool that you must belong to, and it is bound to turn these into discrete pools rather than diversified pools, where there is choice for the trustees on a much freer basis.
And I, I feel that the government itself may be muddling the idea of scale with the idea of diversification, because both are important, and both can deliver better outcomes for members. But there has to be this ability for trustees to choose which managers they believe can do the best for them. And quite frankly, usually it's the case that any one pool cannot be the best at everything. So there will always be the need. As the noble Lord Fuller said, for specialist expertise to offer that to pension schemes.
As regards amendment four in the name of Lady Noakes, who explained excellently just what she is intending to do, the idea is that the government shouldn't dictate specific assets that pension schemes can invest in, and although I have no problem with the government incentivising particular types of investment, whether it's offering better returns or different tax reliefs for investing in the ways that the government might wish, or encouraging a local pension fund to invest in its local area.
The idea of mandating it with no option but to follow seems to me to be a step too far, and I hope that the noble Lord, the Minister, will understand that there is support for the ideas that the government wishes to achieve that lie behind these stipulations in the Bill. It's just that the powers extend so far that we have no idea what might come next in terms of mandation, and we are not talking about incentivising.
We're talking about forcing schemes to invest in ways that Ministers see fit, rather than supporting the economy in general, in ways that the trustees and their managers decide would deliver the best outcomes for the scheme.
My Lords, the LGPS is a very unusual type of defined benefit scheme. It's not like any of the others which are funded because it is underwritten by the government. It doesn't pay a levy to the Pension Protection Fund. The government completely underwrites all the liabilities. So of course, the trustees are able perhaps to feel that they can take more risk than a defined benefit scheme, which is only supported by an employer who may or may not fail, and the members may end up in the PPF.
Having said that, my Lords, unless the government wishes to change the local government pension scheme into another unfunded public sector scheme and just take all the assets in which, of course, it could do, surely it is important to ensure that the trustees can make investment decisions that they believe are best, rather than government, suggesting it knows better and needs to tell them what to do. Now. Both amendments two and five are trying to restrict the ways in which the Local Government Pension scheme can invest, so that they have to choose to belong to one asset pool, and that's it.
They can't participate in another pool, even if they feel that that other pool has some particularly attractive attributes. And I do understand the government's intent that it would like pension schemes to support both local projects and, of course, national projects, as do I, but it shouldn't be that you can only support the local projects that happen to be part of the asset pool that you must belong to, and it is bound to turn these into discrete pools rather than diversified pools, where there is choice for the trustees on a much freer basis.
And I, I feel that the government itself may be muddling the idea of scale with the idea of diversification, because both are important, and both can deliver better outcomes for members. But there has to be this ability for trustees to choose which managers they believe can do the best for them. And quite frankly, usually it's the case that any one pool cannot be the best at everything. So there will always be the need. As the noble Lord Fuller said, for specialist expertise to offer that to pension schemes.
As regards amendment four in the name of Lady Noakes, who explained excellently just what she is intending to do, the idea is that the government shouldn't dictate specific assets that pension schemes can invest in, and although I have no problem with the government incentivising particular types of investment, whether it's offering better returns or different tax reliefs for investing in the ways that the government might wish, or encouraging a local pension fund to invest in its local area.
The idea of mandating it with no option but to follow seems to me to be a step too far, and I hope that the noble Lord, the Minister, will understand that there is support for the ideas that the government wishes to achieve that lie behind these stipulations in the Bill. It's just that the powers extend so far that we have no idea what might come next in terms of mandation, and we are not talking about incentivising.
We're talking about forcing schemes to invest in ways that Ministers see fit, rather than supporting the economy in general, in ways that the trustees and their managers decide would deliver the best outcomes for the scheme.
16:05
Lord Palmer of Childs Hill (Liberal Democrat)
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Lord Palmer of Childs Hill (Liberal Democrat)
My my Lord Stern first. Firstly, I have to declare an interest because after 28 years as a councillor in the London borough of Barnet, I am a modest local government pension and I sometimes forget to declare that I do it now. My. My Lords, we have been lucky to have really, really incisive speeches from. From the noble Lord Fuller, the noble Baroness Noakes, my noble friend, noble colleague, Baroness Bowles and Baroness Altmann. It really afterwards always want to say, is there anything else one should say? But as a politician I will do so.
My Lords, 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 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, to the important question of whether Ministers should be able to steer investments towards towards particular assets and places.
I hope at the end of this debate that amendment four will be moved, and I certainly would want to support that, that amendment. If the noble Baroness decides to move it on these benches, we recognise that pooling can bring efficiencies and expertise, and we generally welcome the provisions on local government pension schemes in this bill. But bigger is not always better simply because it's bigger. Flexibility matters. If one pool has genuine, genuine expertise in a special asset class, there's an argument for allowing schemes to benefit from that knowledge, rather than being locked into a single route for all purposes.
Equally, if powers are to be used over asset pools, proper consultation consultees matter. It's hard to object to hearing from bodies such as the government Actuary's department and the pension regulator before directions are given. These are basic disciplines of good administration. I only hope my local government pension scheme uses those provisions. A wider concern remains the same one raised repeatedly in committee. The Bill is too ready to create broad powers first, and to explain the practical boundaries later on.
The local government pension scheme that is particularly sensitive because we're dealing with a very, very large sums, long term liabilities and members who expect prudence, that's probably what they were in local government at the beginning and not improvisation. So our test is straightforward. Does the provision strengthen scheme governance, preserve proper fiduciary decision making and protect members from political or poorly evidenced intervention? Where it does, it deserves support. Where it does not. Ministers still have work to do. And these amendments at the beginning of of this Report stage are pretty, pretty modest in this stage.
There are some which go further as we go through this bill. And I think the the noble Lady, the Minister and and her colleagues should actually think again about whether this is an improvement on the bill itself. This is not anti the bill, not anti the government. It is actually for prudence. It is for it is for giving fiduciary powers and using using those. And I invite the government Ministers to to actually take a space, a step back at these early these early amendments and to actually say they would consider giving support and asking their colleagues in the other House.
So to do and these are reasonable amendments. There are further other amendments which go further later, later in this debate. But I would like the Ministers feel there is some credibility, particularly amendment four. If the noble so moves.
**** Possible New Speaker ****
My Lords, I want to start by thanking my noble friend Lord Fuller for commencing our Fuller for commencing our discussions at the Report stage on this important Bill. We on these benches look forward to an benches look forward to an effective and constructive Report stage and hope that we can work with nobles across the House to with nobles across the House to make improvements to this bill, which are, in our view and in the view of many in the pension sector, desperately needed.
I will be speaking to the important amendment four in this group towards the end of my remarks, in the name of my noble friend, Lady Noakes. But first I will speak briefly in support of amendments one, two and five in the name of my noble friend Lord Fowler and the noble Baroness, Lady Altmann. And taken together, my Lords, these amendments make constructive improvements to the Bill. So let me begin with amendment one. This amendment would ensure that both the government Actuary's Department and the Pensions Regulator are formally
My Lords, 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 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, to the important question of whether Ministers should be able to steer investments towards towards particular assets and places.
I hope at the end of this debate that amendment four will be moved, and I certainly would want to support that, that amendment. If the noble Baroness decides to move it on these benches, we recognise that pooling can bring efficiencies and expertise, and we generally welcome the provisions on local government pension schemes in this bill. But bigger is not always better simply because it's bigger. Flexibility matters. If one pool has genuine, genuine expertise in a special asset class, there's an argument for allowing schemes to benefit from that knowledge, rather than being locked into a single route for all purposes.
Equally, if powers are to be used over asset pools, proper consultation consultees matter. It's hard to object to hearing from bodies such as the government Actuary's department and the pension regulator before directions are given. These are basic disciplines of good administration. I only hope my local government pension scheme uses those provisions. A wider concern remains the same one raised repeatedly in committee. The Bill is too ready to create broad powers first, and to explain the practical boundaries later on.
The local government pension scheme that is particularly sensitive because we're dealing with a very, very large sums, long term liabilities and members who expect prudence, that's probably what they were in local government at the beginning and not improvisation. So our test is straightforward. Does the provision strengthen scheme governance, preserve proper fiduciary decision making and protect members from political or poorly evidenced intervention? Where it does, it deserves support. Where it does not. Ministers still have work to do. And these amendments at the beginning of of this Report stage are pretty, pretty modest in this stage.
There are some which go further as we go through this bill. And I think the the noble Lady, the Minister and and her colleagues should actually think again about whether this is an improvement on the bill itself. This is not anti the bill, not anti the government. It is actually for prudence. It is for it is for giving fiduciary powers and using using those. And I invite the government Ministers to to actually take a space, a step back at these early these early amendments and to actually say they would consider giving support and asking their colleagues in the other House.
So to do and these are reasonable amendments. There are further other amendments which go further later, later in this debate. But I would like the Ministers feel there is some credibility, particularly amendment four. If the noble so moves.
**** Possible New Speaker ****
My Lords, I want to start by thanking my noble friend Lord Fuller for commencing our Fuller for commencing our discussions at the Report stage on this important Bill. We on these benches look forward to an benches look forward to an effective and constructive Report stage and hope that we can work with nobles across the House to with nobles across the House to make improvements to this bill, which are, in our view and in the view of many in the pension sector, desperately needed.
I will be speaking to the important amendment four in this group towards the end of my remarks, in the name of my noble friend, Lady Noakes. But first I will speak briefly in support of amendments one, two and five in the name of my noble friend Lord Fowler and the noble Baroness, Lady Altmann. And taken together, my Lords, these amendments make constructive improvements to the Bill. So let me begin with amendment one. This amendment would ensure that both the government Actuary's Department and the Pensions Regulator are formally
16:11
Viscount Younger of Leckie (Conservative)
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Viscount Younger of Leckie (Conservative)
consulted before directions are given in relation to asset pool companies, and this seems to me to companies, and this seems to me to be an eminently sensible and proportionate safeguard. The provisions in this Bill give the provisions in this Bill give the government significant powers to direct changes relating to LGPS direct changes relating to LGPS pooling arrangements, changes which may which may in practice reshape the investment structures of some 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 with the Pensions Regulator ensures precisely that that actuarial and regulatory oversight is brought to bear before such directions are issued. And, my Lords, this would help to ensure that decisions which could materially affect the funding, the government's and the investment strategy of the LGPS are taken with expert input, and that seems to be an entirely reasonable expectation when we're dealing with funds which collectively safeguard the retirement incomes.
And we mustn't forget this, my Lords of millions of public servants amendment two addresses another important point. As the bill stands, regulations may prohibit a scheme manager from participating in more than one asset pool company at the same time, and this amendment removes that provision. The effect of doing so would be to give scheme managers greater independence in determining how best to structure their investments. If one asset pool develops particular expertise, for example, and it was mentioned earlier in, say, infrastructure, private markets or another specialist asset class akin to a centre of excellence, perhaps there may well be circumstances in which it is entirely sensible for multiple schemes to participate in that pool for that particular purpose.
Now, my the noble Baroness, Lady Bowles, put it very eloquently, as did the noble Baroness, Lady Altmann. But preventing scheme managers from accessing such expertise simply because they already participate in another pool risks, we believe, imposing an unnecessary rigidity on the system and is unnecessarily prescriptive and inflexible. By removing that restriction. This amendment allows scheme managers greater freedom to act in the interests of their members, which must remain the central principle guiding principle, guiding all decisions in the management of pension assets.
And we do think that the government sometimes forgets this. Amendment five follows a similar logic. It removes wording that restricts how asset pool companies can undertake investment management activities, thereby allowing investment opportunities created within one pool or by one scheme manager to be accessed more widely across the LGPS. So in practical terms, this facilitates cross pool collaboration within the scheme, rather than forcing each pool to operate in isolation. It allows expertise and opportunities to be shared, and that broadens the menu of options open to scheme managers when determining how to allocate assets and pursue long term returns.
At a time when the government themselves are encouraging greater scale and collaboration within pension investment, it seems entirely sensible that the legislative framework should not inadvertently constrain that collaboration. If that is the choice of the scheme manager to the ultimate benefit of members of that scheme. More broadly, these amendments recognise an important principle as structural changes are made to the way that the LGPS operates, changes that could significantly reshape the pensions landscape. And as the noble Baroness Lady Bowles said, as a coherent system, well put, it is essential that those responsible for managing pension funds retain the flexibility to exercise their judgement in the interests of their members.
Pooling can bring benefits, but it should not come at the expense of professional discretion or fiduciary responsibility. And these amendments, we believe, strike a reasonable balance. They strengthen oversight where central powers are exercised, while preserving the ability of scheme managers to make decisions that best serve the members whose pensions they are entrusted to protect. Turning briefly to the remaining amendments from the government, we appreciate the Minister bringing these forward. However, I must say that they do not address the core concerns that have been raised about the LGPS scheme, both in this chamber and in discussions with the Minister outside it.
For that reason, while we welcome the government's engagement, we are disappointed that they have not taken this opportunity to address those broader issues. I now want to finally close by speaking to amendment four in the name of my noble friend, Baroness Noakes. We support this amendment entirely, and we will return to the broader issue of Mandation. As she said in more detail on the second day of report. But my noble friend is absolutely right to have raised the point. Now the question of 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 from using the bill's new regulatory powers to direct pension funds towards politically preferred investments, and we are absolutely clear on this point. Investment decisions should be made by fund managers acting in the interests of members, and governments should not be steering pension assets towards particular sectors, projects or locations. The amendment would insert a clear restriction stating that regulations made under clause 2nd 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. So for that reason, this amendment is extremely important. We will support the noble Baroness Liddell notes. My noble friend Lady Noakes, if she decides to test the opinion of the House and she said in her opening remarks that she was minded to do so.
Thank you.
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 with the Pensions Regulator ensures precisely that that actuarial and regulatory oversight is brought to bear before such directions are issued. And, my Lords, this would help to ensure that decisions which could materially affect the funding, the government's and the investment strategy of the LGPS are taken with expert input, and that seems to be an entirely reasonable expectation when we're dealing with funds which collectively safeguard the retirement incomes.
And we mustn't forget this, my Lords of millions of public servants amendment two addresses another important point. As the bill stands, regulations may prohibit a scheme manager from participating in more than one asset pool company at the same time, and this amendment removes that provision. The effect of doing so would be to give scheme managers greater independence in determining how best to structure their investments. If one asset pool develops particular expertise, for example, and it was mentioned earlier in, say, infrastructure, private markets or another specialist asset class akin to a centre of excellence, perhaps there may well be circumstances in which it is entirely sensible for multiple schemes to participate in that pool for that particular purpose.
Now, my the noble Baroness, Lady Bowles, put it very eloquently, as did the noble Baroness, Lady Altmann. But preventing scheme managers from accessing such expertise simply because they already participate in another pool risks, we believe, imposing an unnecessary rigidity on the system and is unnecessarily prescriptive and inflexible. By removing that restriction. This amendment allows scheme managers greater freedom to act in the interests of their members, which must remain the central principle guiding principle, guiding all decisions in the management of pension assets.
And we do think that the government sometimes forgets this. Amendment five follows a similar logic. It removes wording that restricts how asset pool companies can undertake investment management activities, thereby allowing investment opportunities created within one pool or by one scheme manager to be accessed more widely across the LGPS. So in practical terms, this facilitates cross pool collaboration within the scheme, rather than forcing each pool to operate in isolation. It allows expertise and opportunities to be shared, and that broadens the menu of options open to scheme managers when determining how to allocate assets and pursue long term returns.
At a time when the government themselves are encouraging greater scale and collaboration within pension investment, it seems entirely sensible that the legislative framework should not inadvertently constrain that collaboration. If that is the choice of the scheme manager to the ultimate benefit of members of that scheme. More broadly, these amendments recognise an important principle as structural changes are made to the way that the LGPS operates, changes that could significantly reshape the pensions landscape. And as the noble Baroness Lady Bowles said, as a coherent system, well put, it is essential that those responsible for managing pension funds retain the flexibility to exercise their judgement in the interests of their members.
Pooling can bring benefits, but it should not come at the expense of professional discretion or fiduciary responsibility. And these amendments, we believe, strike a reasonable balance. They strengthen oversight where central powers are exercised, while preserving the ability of scheme managers to make decisions that best serve the members whose pensions they are entrusted to protect. Turning briefly to the remaining amendments from the government, we appreciate the Minister bringing these forward. However, I must say that they do not address the core concerns that have been raised about the LGPS scheme, both in this chamber and in discussions with the Minister outside it.
For that reason, while we welcome the government's engagement, we are disappointed that they have not taken this opportunity to address those broader issues. I now want to finally close by speaking to amendment four in the name of my noble friend, Baroness Noakes. We support this amendment entirely, and we will return to the broader issue of Mandation. As she said in more detail on the second day of report. But my noble friend is absolutely right to have raised the point. Now the question of 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 from using the bill's new regulatory powers to direct pension funds towards politically preferred investments, and we are absolutely clear on this point. Investment decisions should be made by fund managers acting in the interests of members, and governments should not be steering pension assets towards particular sectors, projects or locations. The amendment would insert a clear restriction stating that regulations made under clause 2nd 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. So for that reason, this amendment is extremely important. We will support the noble Baroness Liddell notes. My noble friend Lady Noakes, if she decides to test the opinion of the House and she said in her opening remarks that she was minded to do so.
Thank you.
16:17
Government Spokes.
Lord Katz (Labour)
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Government Spokes.
Lord Katz (Labour)
My Lords. I'm grateful for the discussion we've had over the first group amendments in this Report stage on the Pension scheme Bill before. I'm indebted to the noble Lord Lord Palmer of Childs Hill for reminding me, too, that our our. I should declare my my membership. As a former Camden councillor of the member's pension scheme, although I. I must defer to him in terms of seniority in years. In years of service, I did a paltry one term as opposed to his gazillion.
I think it was in my neighbour, the neighbouring council in Barnet. I share the interest that's been raised in the discussion that we've had this afternoon in fostering greater collaboration and sharing of expertise across the LGPS, and ensuring there are appropriate safeguards on the provisions in the bill. I'll begin with amendment one, tabled by the noble Lord Lord Fuller, and it's right that we ensure that appropriate safeguards are in place on the use of direction. Powers which are reiterated are included in the bill as backstops in order to ensure the government can fulfil its role as stewards of the scheme.
But let me be clear that the direction powers in this bill are not designed to allow the government to direct investment into specific assets or assets clauses, and the government is satisfied that they cannot be used in this way. The bill already requires the Secretary of State to consult with the asset pool company in 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, as is an appropriate body for this list.
Asset pool companies will be regulated by the FCA and do not fall under the remit of the Pensions Regulator. Now in moving his his his his amendment. The noble Lord Lord Fuller took issue with the closure of the access pool. To be clear, access went through the same process as all the pools and outsourcing. All of their investing as they did was not value for money. The pools that access funds are going to. All pools that access funds are going to are all FCA regulated, to be absolutely clear about that.
So and I hope that provides reassurance for not just the noble Lord Fuller, but for your your Lordships House, the Ministry of Housing, Communities and Local Government will work very closely with the government Actuary's Department, who provide actual advice to the Department on the LGPS. It can be expected that the Department would seek advice from them prior to issuing a direction, wherever it was relevant to do so. Furthermore, the Secretary of State has a duty to consult anyone they consider appropriate to consult under paragraph five of this clause, which could include the government actuary department.
It may not always be appropriate, however, depending on the type of direction being issued, overly burdensome and formal consultation requirements can slow decision making and would therefore seem potentially onerous to have the government actuary as a compulsory consultee on these direction powers. The noble Lord Lord Fuller also talked about the impact of our local government reorganisation on pooling in the LGPS. I just want to say that many administering authorities are forming new partnerships, partnerships to deliver the stance of pooling, which we've set, and I know that authorities have taken the impact of local government reorganisation into account when making the decision about which pool to join.
The government, of course, stands ready to support authorities with concerns they may have about the impact of local government reorganisation on the administration of the LGPS in the area and also, for the avoidance of doubt, to address the point made by the noble Lady Baroness Bowles. There is nothing in the legislation that says that the government underwrites the liability of the LGPS. These are locally managed schemes, which includes, of course, responsibility for liabilities. Turning to amendment two, this amendment seeks to encourage collaboration and competition across the LGPS by permitting administering authorities to participate in more than one asset pool company.
This government strongly believes that pools should work together wherever. This can improve outcomes for members, employers and taxpayers, asset pools become centres of excellence and specialist asset clauses would reduce duplication and enable investments at scale, both within pools and across the whole scheme. Joint ventures are already operating in the scheme, such as LP and Northern LGPS collaboration through the Global Infrastructure Fund, which invests in assets ranging from ranging from upgraded rail rolling stock to green energy and water projects. And these show how collective investment can unlock the scheme's potential to invest in the UK.
To encourage further collaboration. This time, my Lords clause four of the Bill removes procurement barriers so that pools can invest in one another's vehicles without limitation. Nothing in this legislation prevents administering authorities from benefiting from specialist expertise in other asset pools, and it certainly doesn't impose an arbitrary north south boundary or other such divisions, as Lord Fuller intimated. However, under the reformed system, this will be appropriately done via their own asset pool because decisions can contract with or invest alongside another pool are a matter for the regulated pool company, not for individual authorities.
The bill establishes a clear division of responsibilities. Administering authorities will set the investment strategy, while asset pools will implement that strategy. This places investment decisions with professional managers enabling the scheme to achieve scale and deepen capability. This amendment would undermine those benefits by returning investment decisions to to individual authorities, rather than with the expertise developed at the pools. I therefore believe that this amendment is neither necessary nor appropriate measure to enable collaboration across the scheme, and I want to provide some reassurance to the noble Lady Baroness Altmann in the points that she raised.
Firstly, pooling is not about limited choice. Pools will select managers on behalf of their funds under the fund's directions. Secondly, the investment strategy is set by the fund's will set funding objectives and in asset allocation. And thirdly, the responsibility for setting the investment strategy remains with funds. Nothing in the bill allows governments to tell funds what to invest in, nor do pools make. That decision will be made by the LGPS funds for pools to deliver. I will now turn to amendment five, also from noble Lords Lord Fuller and noble Baroness Altmann.
I understand noble Lord Fuller intention behind this amendment is to allow investment in opportunities created by other administrative authorities and asset pools. As I've discussed above, this is something that's already possible under the legislation as drafted, what the amendment would do actually do is allow administering authorities to count as local any investment to the benefit of people living or working anywhere in England and Wales. This definition is only relevant when administering. Authorities are setting their approach to, and targets for local investment in their investment strategy and when reporting on the extent and impact of local investment, the government is, of course, all for UK investment.
Indeed, the LGPS, as we've heard, is the country's largest UK pensions investor already. However, the purpose of requiring a specifically local, not national investment objective in the investment strategy is to encourage investment into all regions of the UK and directly into the communities in which scheme members have worked. I'm insisting authorities can set any target they want for local investment, and asset pools are free to invest assets over and above this target in the UK or worldwide as best fits investment strategy.
There's therefore nothing stopping administering authorities from benefiting from investments anywhere in the country, regardless of their geographic location. Turning now to amendment four in the name of the noble Lady Baroness Noakes clause two, and specifically the provisions in subsection three, B and four allows the government to make specific make regulations specifying matters that administering authorities must or may cover in their investment strategy. It is not designed to permit government to dictate what permit government to dictate what that strategy says.
The power we removed from the bill in the other place was equivalent to power the powers the Secretary of State currently has over funds, which the government's initial judgement was. The government's initial judgement was that it was appropriate to have over pools. Under the new system, we've heard feedback from stakeholders and felt it was not necessary for the Secretary of State to have those powers. This provision will be used to require the LGPS investment strategies include an approach and target range for local investment, high level funding objectives and an approach to responsible investment, and a strategic asset allocation completed to a standard template to be included in guidance.
In each case, it remains for LGPS administering authorities to determine what those objectives approaches. Asset allocations and target ranges will be. Some may be concerned about how a future government might use the provision. I reassure them that the government does not consider the clause to permit regulations compelling authorities to adopt any particular position in their investment strategy. I hope, therefore, that the noble Lady will be reassured that the Bill does not do not enable what their amendment seeks to guard against.
I now briefly turn to government amendments to clause four amendments G6, G7 and G8, for the purpose of which is to ensure that changes made under the clause do not have any wider application than intended. Clause four amends the Procurement Act 2023 to create a new exemption for investment and fund management contracts between local government pension funds, pension scheme managers and their LGPS asset pool companies. This is required because the existing exemption in the Procurement Act contains a turnover test that would cap the potential for LGPS asset pools to collaborate through joint ventures.
Clause four therefore, addresses this by ensuring that LGPS pools are not subject to this turnover test, where Paul is acting in the interests of local government pension scheme managers. However, it's appropriate that the effect of this clause does not go any wider than intended. The amendments, therefore, put it beyond doubt that these changes apply only where local Government Pension scheme managers are acting in their capacity as local government pension scheme managers and not in any other scheme management capacity they may have.
I hope my response demonstrates the government has considered the points raised through amendments one, two, four and five carefully and to pick up the the comments of the noble Lord, Lord Palmer. We understand the intent, the the the intentions behind the amendments, I we just do not think that they are that they are. They are they are necessary. But we understand that the the the motivation behind them. Hopefully my explanation will understand that. I will also respond to the wider point that we discussed at some length during committee.
The nature of this bill could buy some skeletal. Is. This is how pensions and other financial management legislation is passed. A lot has to be done. The. It has to be done through regulation because. This is how one responds to the. The changing change, changing marketplaces and, and and sector demands. So we make no apologies for that. However, the government welcomes collaboration across the scheme. And as I've explained, the provision in this bill and our proposed regulations already allow for it, amendments two and five would undermine the pooling and local investment reforms without promoting further collaboration.
This government also recognised, recognises the desire to ensure their appropriate safeguards on the use of direction powers. I hope I've reassured you, Lordships House that the consultation requirements in place are already sufficient, and that it's not necessary to introduce additional references to the government actuary and the pensions regulator here. Finally, I hope I have reassured your Lordships' House that the provisions in this bill do not allow government to introduce mandates via regulation. I would therefore ask the Lord Lord Fuller to withdraw his amendment one and to accept the government amendments six, seven and eight.
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Before the Minister sits down. Can he just clarify? He said that Can he just clarify? He said that amendment four is unnecessary because the bill does not do what because the bill does not do what the promoters of amendment four argue that it does, but he didn't say that it would be malign, that 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 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 four were accepted? In what way does it damage the government, damage pension fund trustees or damage pension fund members? It is not good enough simply to say that Baroness Altmann, Baroness Bowles and Lord Farmer are wrong and to take it on trust. That is not what we should do.
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Well, I simply say if we took that approach to to all, to all legislation, we'd end up with bills legislation, we'd end up with bills hundreds, thousands of pages long because we have more and more men just to just simply, simply, simply because, you know, it's they're well intentioned. We have, you know, it's important that we're clear about the legislation that we're about the legislation that we're drafting so that people can input, whether it's whether it's, you know, people in the pension sector or people in the pension sector or indeed in lawyers or whoever can properly interpret what we intend by any legislation, not just this, not just this bill, my Lords.
And it's and when we say that something is superfluous, we do not we do not add in. I think that's a perfectly decent criteria by which to by which legislation, what you say. No, but I mean we you shake your head. The noble Lord Lord Gove shakes his head. But I would I would I I'd say to him gently, we get a lot of criticism for large bills, both the previous government and this government. And, you know, there's always a there's always an onus to have slimmer legislation.
We don't get slimmer legislation by accepting amendments that we think
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are superfluous willy nilly. No, no, no, no, I'm afraid that
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No, no, no, no, I'm afraid that
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answer is completely inadequate. My Lords, it's been. An interesting debate.
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An interesting debate. The LGPS, the. LGPS is special. It's the closest thing, as a number of noble Lords have said, to having a sovereign wealth fund in our islands. And I'm unconvinced with
I think it was in my neighbour, the neighbouring council in Barnet. I share the interest that's been raised in the discussion that we've had this afternoon in fostering greater collaboration and sharing of expertise across the LGPS, and ensuring there are appropriate safeguards on the provisions in the bill. I'll begin with amendment one, tabled by the noble Lord Lord Fuller, and it's right that we ensure that appropriate safeguards are in place on the use of direction. Powers which are reiterated are included in the bill as backstops in order to ensure the government can fulfil its role as stewards of the scheme.
But let me be clear that the direction powers in this bill are not designed to allow the government to direct investment into specific assets or assets clauses, and the government is satisfied that they cannot be used in this way. The bill already requires the Secretary of State to consult with the asset pool company in 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, as is an appropriate body for this list.
Asset pool companies will be regulated by the FCA and do not fall under the remit of the Pensions Regulator. Now in moving his his his his amendment. The noble Lord Lord Fuller took issue with the closure of the access pool. To be clear, access went through the same process as all the pools and outsourcing. All of their investing as they did was not value for money. The pools that access funds are going to. All pools that access funds are going to are all FCA regulated, to be absolutely clear about that.
So and I hope that provides reassurance for not just the noble Lord Fuller, but for your your Lordships House, the Ministry of Housing, Communities and Local Government will work very closely with the government Actuary's Department, who provide actual advice to the Department on the LGPS. It can be expected that the Department would seek advice from them prior to issuing a direction, wherever it was relevant to do so. Furthermore, the Secretary of State has a duty to consult anyone they consider appropriate to consult under paragraph five of this clause, which could include the government actuary department.
It may not always be appropriate, however, depending on the type of direction being issued, overly burdensome and formal consultation requirements can slow decision making and would therefore seem potentially onerous to have the government actuary as a compulsory consultee on these direction powers. The noble Lord Lord Fuller also talked about the impact of our local government reorganisation on pooling in the LGPS. I just want to say that many administering authorities are forming new partnerships, partnerships to deliver the stance of pooling, which we've set, and I know that authorities have taken the impact of local government reorganisation into account when making the decision about which pool to join.
The government, of course, stands ready to support authorities with concerns they may have about the impact of local government reorganisation on the administration of the LGPS in the area and also, for the avoidance of doubt, to address the point made by the noble Lady Baroness Bowles. There is nothing in the legislation that says that the government underwrites the liability of the LGPS. These are locally managed schemes, which includes, of course, responsibility for liabilities. Turning to amendment two, this amendment seeks to encourage collaboration and competition across the LGPS by permitting administering authorities to participate in more than one asset pool company.
This government strongly believes that pools should work together wherever. This can improve outcomes for members, employers and taxpayers, asset pools become centres of excellence and specialist asset clauses would reduce duplication and enable investments at scale, both within pools and across the whole scheme. Joint ventures are already operating in the scheme, such as LP and Northern LGPS collaboration through the Global Infrastructure Fund, which invests in assets ranging from ranging from upgraded rail rolling stock to green energy and water projects. And these show how collective investment can unlock the scheme's potential to invest in the UK.
To encourage further collaboration. This time, my Lords clause four of the Bill removes procurement barriers so that pools can invest in one another's vehicles without limitation. Nothing in this legislation prevents administering authorities from benefiting from specialist expertise in other asset pools, and it certainly doesn't impose an arbitrary north south boundary or other such divisions, as Lord Fuller intimated. However, under the reformed system, this will be appropriately done via their own asset pool because decisions can contract with or invest alongside another pool are a matter for the regulated pool company, not for individual authorities.
The bill establishes a clear division of responsibilities. Administering authorities will set the investment strategy, while asset pools will implement that strategy. This places investment decisions with professional managers enabling the scheme to achieve scale and deepen capability. This amendment would undermine those benefits by returning investment decisions to to individual authorities, rather than with the expertise developed at the pools. I therefore believe that this amendment is neither necessary nor appropriate measure to enable collaboration across the scheme, and I want to provide some reassurance to the noble Lady Baroness Altmann in the points that she raised.
Firstly, pooling is not about limited choice. Pools will select managers on behalf of their funds under the fund's directions. Secondly, the investment strategy is set by the fund's will set funding objectives and in asset allocation. And thirdly, the responsibility for setting the investment strategy remains with funds. Nothing in the bill allows governments to tell funds what to invest in, nor do pools make. That decision will be made by the LGPS funds for pools to deliver. I will now turn to amendment five, also from noble Lords Lord Fuller and noble Baroness Altmann.
I understand noble Lord Fuller intention behind this amendment is to allow investment in opportunities created by other administrative authorities and asset pools. As I've discussed above, this is something that's already possible under the legislation as drafted, what the amendment would do actually do is allow administering authorities to count as local any investment to the benefit of people living or working anywhere in England and Wales. This definition is only relevant when administering. Authorities are setting their approach to, and targets for local investment in their investment strategy and when reporting on the extent and impact of local investment, the government is, of course, all for UK investment.
Indeed, the LGPS, as we've heard, is the country's largest UK pensions investor already. However, the purpose of requiring a specifically local, not national investment objective in the investment strategy is to encourage investment into all regions of the UK and directly into the communities in which scheme members have worked. I'm insisting authorities can set any target they want for local investment, and asset pools are free to invest assets over and above this target in the UK or worldwide as best fits investment strategy.
There's therefore nothing stopping administering authorities from benefiting from investments anywhere in the country, regardless of their geographic location. Turning now to amendment four in the name of the noble Lady Baroness Noakes clause two, and specifically the provisions in subsection three, B and four allows the government to make specific make regulations specifying matters that administering authorities must or may cover in their investment strategy. It is not designed to permit government to dictate what permit government to dictate what that strategy says.
The power we removed from the bill in the other place was equivalent to power the powers the Secretary of State currently has over funds, which the government's initial judgement was. The government's initial judgement was that it was appropriate to have over pools. Under the new system, we've heard feedback from stakeholders and felt it was not necessary for the Secretary of State to have those powers. This provision will be used to require the LGPS investment strategies include an approach and target range for local investment, high level funding objectives and an approach to responsible investment, and a strategic asset allocation completed to a standard template to be included in guidance.
In each case, it remains for LGPS administering authorities to determine what those objectives approaches. Asset allocations and target ranges will be. Some may be concerned about how a future government might use the provision. I reassure them that the government does not consider the clause to permit regulations compelling authorities to adopt any particular position in their investment strategy. I hope, therefore, that the noble Lady will be reassured that the Bill does not do not enable what their amendment seeks to guard against.
I now briefly turn to government amendments to clause four amendments G6, G7 and G8, for the purpose of which is to ensure that changes made under the clause do not have any wider application than intended. Clause four amends the Procurement Act 2023 to create a new exemption for investment and fund management contracts between local government pension funds, pension scheme managers and their LGPS asset pool companies. This is required because the existing exemption in the Procurement Act contains a turnover test that would cap the potential for LGPS asset pools to collaborate through joint ventures.
Clause four therefore, addresses this by ensuring that LGPS pools are not subject to this turnover test, where Paul is acting in the interests of local government pension scheme managers. However, it's appropriate that the effect of this clause does not go any wider than intended. The amendments, therefore, put it beyond doubt that these changes apply only where local Government Pension scheme managers are acting in their capacity as local government pension scheme managers and not in any other scheme management capacity they may have.
I hope my response demonstrates the government has considered the points raised through amendments one, two, four and five carefully and to pick up the the comments of the noble Lord, Lord Palmer. We understand the intent, the the the intentions behind the amendments, I we just do not think that they are that they are. They are they are necessary. But we understand that the the the motivation behind them. Hopefully my explanation will understand that. I will also respond to the wider point that we discussed at some length during committee.
The nature of this bill could buy some skeletal. Is. This is how pensions and other financial management legislation is passed. A lot has to be done. The. It has to be done through regulation because. This is how one responds to the. The changing change, changing marketplaces and, and and sector demands. So we make no apologies for that. However, the government welcomes collaboration across the scheme. And as I've explained, the provision in this bill and our proposed regulations already allow for it, amendments two and five would undermine the pooling and local investment reforms without promoting further collaboration.
This government also recognised, recognises the desire to ensure their appropriate safeguards on the use of direction powers. I hope I've reassured you, Lordships House that the consultation requirements in place are already sufficient, and that it's not necessary to introduce additional references to the government actuary and the pensions regulator here. Finally, I hope I have reassured your Lordships' House that the provisions in this bill do not allow government to introduce mandates via regulation. I would therefore ask the Lord Lord Fuller to withdraw his amendment one and to accept the government amendments six, seven and eight.
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Before the Minister sits down. Can he just clarify? He said that Can he just clarify? He said that amendment four is unnecessary because the bill does not do what because the bill does not do what the promoters of amendment four argue that it does, but he didn't say that it would be malign, that 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 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 four were accepted? In what way does it damage the government, damage pension fund trustees or damage pension fund members? It is not good enough simply to say that Baroness Altmann, Baroness Bowles and Lord Farmer are wrong and to take it on trust. That is not what we should do.
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Well, I simply say if we took that approach to to all, to all legislation, we'd end up with bills legislation, we'd end up with bills hundreds, thousands of pages long because we have more and more men just to just simply, simply, simply because, you know, it's they're well intentioned. We have, you know, it's important that we're clear about the legislation that we're about the legislation that we're drafting so that people can input, whether it's whether it's, you know, people in the pension sector or people in the pension sector or indeed in lawyers or whoever can properly interpret what we intend by any legislation, not just this, not just this bill, my Lords.
And it's and when we say that something is superfluous, we do not we do not add in. I think that's a perfectly decent criteria by which to by which legislation, what you say. No, but I mean we you shake your head. The noble Lord Lord Gove shakes his head. But I would I would I I'd say to him gently, we get a lot of criticism for large bills, both the previous government and this government. And, you know, there's always a there's always an onus to have slimmer legislation.
We don't get slimmer legislation by accepting amendments that we think
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are superfluous willy nilly. No, no, no, no, I'm afraid that
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No, no, no, no, I'm afraid that
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answer is completely inadequate. My Lords, it's been. An interesting debate.
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An interesting debate. The LGPS, the. LGPS is special. It's the closest thing, as a number of noble Lords have said, to having a sovereign wealth fund in our islands. And I'm unconvinced with
16:32
Lord Fuller (Conservative)
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Lord Fuller (Conservative)
the points made by the noble Lord Lord Katz. He's misunderstood what local investments are. I don't accept for a moment that his reassurances around the creation of specialist pools. He's, as my noble specialist pools. He's, as my noble friend Lord younger said from the front bed. This increases unnecessary rigidity, damages coherence and misunderstands the distinction between funding and financing. I suppose noble Lords could have at least one thing. We can be grateful, though, as the noble Lord Lord Katz without the Dispatch Box, it's saved the Minister Baroness Sherlock from repeating the old trope that the large Ontario and Canadian pension funds are the sort of things where we consider that 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 now. Look, I'm conscious. I'm winding up. I will not press one and two and five to debate, but I will support my my noble friend Baroness Noakes in the lobby if he chooses to divide the house.
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 now. Look, I'm conscious. I'm winding up. I will not press one and two and five to debate, but I will support my my noble friend Baroness Noakes in the lobby if he chooses to divide the house.
16:33
Deputy Lord Speaker
Lord Faulkner of Worcester (Labour)
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Deputy Lord Speaker
Lord Faulkner of Worcester (Labour)
One be withdrawn. Amendment one is by leave withdrawn. Amendment two Lord Fuller not moved. Amendment three Lord Sharkey. Amendment four. Baroness Noakes question is that amendment four be agreed to? As many as are of that opinion will say content, content content content, not content. The question will be decided by division. I'll advise the House division. I'll advise the House when voting is open. Voting is now
16:37
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>> >> I >> I know >> I know the >> I know the question >> I know the question is, >> I know the question is, with amendment four be agreed to, as amendment four be agreed to, as many as are of that opinion will say content contrary, not content. The contents will go to the right by the throne will not content to
16:42
Pension Schemes Bill - report stage: Amdt:4-Division.
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Pension Schemes Bill - report stage: Amdt:4-Division.
The The question
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Local
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Local Government Local Government Pension Local Government Pension Schemes.
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By By Lord By Lord Reay By Lord Reay have By Lord Reay have voted.
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By Lord Reay have voted. Contents 276 not contents 165. So
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the contents of it. Lord Fuller.
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Lord Fuller. Amendment six, seven and eight move formally. En bloc question is that amendment six, seven, and eight be agreed to. En bloc as many as are of that opinion will say content country not content. The contents have it after clause seven, amendment nine. Viscount Younger of
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Local
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Local Government Local Government Pension Local Government Pension Schemes.
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By By Lord By Lord Reay By Lord Reay have By Lord Reay have voted.
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By Lord Reay have voted. Contents 276 not contents 165. So
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the contents of it. Lord Fuller.
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Lord Fuller. Amendment six, seven and eight move formally. En bloc question is that amendment six, seven, and eight be agreed to. En bloc as many as are of that opinion will say content country not content. The contents have it after clause seven, amendment nine. Viscount Younger of
16:45
Amendment:9
Baroness Stedman-Scott (Conservative)
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Amendment:9
Baroness Stedman-Scott (Conservative)
Lecce. Baroness Stedman-Scott. >> My Lords, I rise to move. Amendment nine standing in the name Amendment nine standing in the name of my noble friend Viscount Younger of Leckie and myself. During the passage of this bill. We on these benches have had a great many benches have had a great many discussions, not only in this chamber, but also with industry experts, scheme managers, employers experts, scheme managers, employers and others who would be directly affected by the provisions before us.
Those conversations are valuable. They have also revealed something which I must say many of us have found increasingly concerning. We've 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. Levels of contribution, which appear to go well beyond what would be required for those funds to be fully funded, even on a very prudent basis. Now, of course, prudence is essential in pension funding.
No one in this House would dispute that. Pension promises stretch stretched 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. But what we are seeing in some cases appears to move beyond prudence, into something else, into excessive prudence. When contribution requirements are set significantly above what would be necessary, even under extremely cautious valuation assumptions. The consequence is that employers, local authorities, academies, housing association and others are required to divert even greater sums of money into pension funds.
That money does not come from nowhere, it comes from taxpayers. It comes from public budgets, which might otherwise be used to fund and support local services, to improve communities, to invest in schools, to support vulnerable people, and to deliver the many things that we all want. Councils and public bodies to be able to do. If those employers have been asked to contribute significantly more than is necessary to secure the pensions of their members, then we have to ask whether the balance between prudence and proportionality has shifted too far.
And that is precisely the issue this amendment seeks to address. What the amendment does is introduce an important requirement for transparency. It would require local government pension scheme valuations to be benchmarked against two widely recognised measures. Ensure a pricing, specifically bulk annuity pricing and evaluation based on guilt discount rates. Those benchmarks will then be published alongside the scheme's official funding valuation. Crucially, where the scheme's official valuation is materially more prudent than those benchmarks, the administrating authority would be required to publish a clear statement explaining three things.
First, what risk the scheme is seeking to guard against. Secondly, why those risks justify the high level of prudence being applied. And thirdly, what the impact of that additional prudence is on employer contribution rates. In other words, the amendment introduces transparency around the actuarial assumptions being used. It allows employers, scheme members and the wider public to see how prudence affects contribution costs, and it gives those who are paying into the scheme the ability to understand and, where appropriate, question the basis on which those costs are being set.
This intention should not be controversial. Indeed, one might reasonably argue that it should be a basic feature of the system where decisions are being taken, which require significant contributions from public bodies. There should be transparency about how those decisions are reached. There should be honesty about the assumptions being applied, and those affected should have the information necessary to exercise agency and scrutiny. What this amendment seeks to achieve is not to undermine prudence. Quite the opposite. Prudence remains vital in pension funding, but prudence must be accompanied by accountability.
And when additional prudence is applied, particularly where it carries significant cost implications, it should be clearly explained and justified. The fact that our amendment requires those benchmarks, the funding strategy statement and employer contribution rates to be published together is another key point. It allows stakeholders to see the full chain from market comparison to actuarial judgement, to the costs ultimately borne by employers. This amendment therefore strikes a sensible balance. It preserves the independence of actuaries and the integrity of the valuation process, while ensuring that the consequences of those decisions are visible and understood.
For employers, it provides clarity for scheme members, it provides reassurance, and for taxpayers it ensures that the significant sums being directed into pension funds are subject to appropriate transparency. For those reasons, I believe this amendment represents a constructive and proportionate improvement to the bill. It asks only that where higher levels of prudence are applied. They're accompanied by explanation and openness. That seems to me an entirely reasonable expectation, and I will test the opinion of the House when it's called.
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Proposed after clause seven. Insert the new clause. Benchmarking
Those conversations are valuable. They have also revealed something which I must say many of us have found increasingly concerning. We've 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. Levels of contribution, which appear to go well beyond what would be required for those funds to be fully funded, even on a very prudent basis. Now, of course, prudence is essential in pension funding.
No one in this House would dispute that. Pension promises stretch stretched 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. But what we are seeing in some cases appears to move beyond prudence, into something else, into excessive prudence. When contribution requirements are set significantly above what would be necessary, even under extremely cautious valuation assumptions. The consequence is that employers, local authorities, academies, housing association and others are required to divert even greater sums of money into pension funds.
That money does not come from nowhere, it comes from taxpayers. It comes from public budgets, which might otherwise be used to fund and support local services, to improve communities, to invest in schools, to support vulnerable people, and to deliver the many things that we all want. Councils and public bodies to be able to do. If those employers have been asked to contribute significantly more than is necessary to secure the pensions of their members, then we have to ask whether the balance between prudence and proportionality has shifted too far.
And that is precisely the issue this amendment seeks to address. What the amendment does is introduce an important requirement for transparency. It would require local government pension scheme valuations to be benchmarked against two widely recognised measures. Ensure a pricing, specifically bulk annuity pricing and evaluation based on guilt discount rates. Those benchmarks will then be published alongside the scheme's official funding valuation. Crucially, where the scheme's official valuation is materially more prudent than those benchmarks, the administrating authority would be required to publish a clear statement explaining three things.
First, what risk the scheme is seeking to guard against. Secondly, why those risks justify the high level of prudence being applied. And thirdly, what the impact of that additional prudence is on employer contribution rates. In other words, the amendment introduces transparency around the actuarial assumptions being used. It allows employers, scheme members and the wider public to see how prudence affects contribution costs, and it gives those who are paying into the scheme the ability to understand and, where appropriate, question the basis on which those costs are being set.
This intention should not be controversial. Indeed, one might reasonably argue that it should be a basic feature of the system where decisions are being taken, which require significant contributions from public bodies. There should be transparency about how those decisions are reached. There should be honesty about the assumptions being applied, and those affected should have the information necessary to exercise agency and scrutiny. What this amendment seeks to achieve is not to undermine prudence. Quite the opposite. Prudence remains vital in pension funding, but prudence must be accompanied by accountability.
And when additional prudence is applied, particularly where it carries significant cost implications, it should be clearly explained and justified. The fact that our amendment requires those benchmarks, the funding strategy statement and employer contribution rates to be published together is another key point. It allows stakeholders to see the full chain from market comparison to actuarial judgement, to the costs ultimately borne by employers. This amendment therefore strikes a sensible balance. It preserves the independence of actuaries and the integrity of the valuation process, while ensuring that the consequences of those decisions are visible and understood.
For employers, it provides clarity for scheme members, it provides reassurance, and for taxpayers it ensures that the significant sums being directed into pension funds are subject to appropriate transparency. For those reasons, I believe this amendment represents a constructive and proportionate improvement to the bill. It asks only that where higher levels of prudence are applied. They're accompanied by explanation and openness. That seems to me an entirely reasonable expectation, and I will test the opinion of the House when it's called.
**** Possible New Speaker ****
Proposed after clause seven. Insert the new clause. Benchmarking
16:52
Deputy Lord Speaker
Lord Faulkner of Worcester (Labour)
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Deputy Lord Speaker
Lord Faulkner of Worcester (Labour)
Insert the new clause. Benchmarking of local government pension scheme liabilities, the words of which are on the Marshalled List. Amendment
**** Possible New Speaker ****
on the Marshalled List. Amendment nine. My Lords, I rise to. Support amendment nine in the name of my noble friends on the name of my noble friends on the front bench, and I'd like to place on the record some very good behaviours amongst the LGPS schemes that already follow the path laid out in the amendment, and which would be then placed on the statutory basis. I wouldn't want people to think that none of that
**** Possible New Speaker ****
on the Marshalled List. Amendment nine. My Lords, I rise to. Support amendment nine in the name of my noble friends on the name of my noble friends on the front bench, and I'd like to place on the record some very good behaviours amongst the LGPS schemes that already follow the path laid out in the amendment, and which would be then placed on the statutory basis. I wouldn't want people to think that none of that
16:52
Lord Fuller (Conservative)
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Lord Fuller (Conservative)
best practice happens, or that the numbers are just plucked out of the air. That's not the way it is at air. That's not the way it is at all. So the purpose is that all schemes reach expectations and assess their liabilities in aggregate, not just for each of the aggregate, not just for each of the councils. And most people at without this House would think, yes, without this House would think, yes, the LGPS scheme for councils. But there are all the other admitted bodies as well.
Now, when I first joined the Norfolk scheme, as I said in the previous group, 20 years ago, there were about 70 admitted bodies. There are now 500. It's extraordinarily complicated nationally on the whole LGPS basis, there are 6160 scheduled bodies, 3639 admitted bodies, four, seven, eight designated designated bodies. I don't know what they are. I think it might be the Environment Agency and 40 15,049 employers with active members. So I think the key thing is as as in support of my noble friend Baroness Stedman-Scott, when we look at all these contribution rates, it isn't just taking the scheme in aggregate.
We do have to drill down and see all the particular liabilities for each employer in the scheme. And now, my Lords, I'm drifting into the complication that we often hear so much about, which is used to obfuscate the scheme. What I really like about this amendment is that it stops people who know about local government pension schemes from hiding behind that complexity, that obfuscation. It will require members to publish in plain language how the numbers are arrived at and what this amendment seeks to achieve.
Now, again, to repeat on some of my history when I first joined the Norfolk scheme is a good example. We were 79% funded. We shovelled in cash like it was going out of fashion. Now, 20 years later, we're 130% funded. In the last three years, it's gone up 25%. And these big swings militate against stability and sustainability. I think we can say that over the years, there has been a pessimism bias, which has meant that council tax and councils and those admitted bodies have put much, much more money into the scheme.
And partly, I think there was a groupthink from some of the from the regulators which forced us down this path. There is a lot of. But I do want to provide reassurance. When you look at the assumptions that I've been involved in and over. Five Triennial Re-evaluations now there's a fan of opportunities. Scenarios that the actuaries run each. On the membership of the scheme, the sponsoring employers, even the life expectancy of members calibrated by postcode. So with about a thousand different scenarios in the scheme that I have seen, of course, one of those scenarios is a wipe-out scenario.
We should not confuse a scenario with a likelihood. And I think what has happened with the benefit of hindsight is that the extreme cases have been taken. They sort of split it in the middle, whereas in fact, actually there was much more clustering around the middle and we wouldn't have had to put in so much. That's why this amendment is going to look much more focussed at the funding strategy or funding strategy, said the funding strategy statement. And and I think that way we can take into account what the true costs are.
And also, and I'm reminded, seeing the Lord Davies of Gower, who's an actuary and I'm going to repeat because I gave it in the grand committee, it was a small audience. I'm going to repeat the old joke again. The old actuaries, we're all living longer and it's getting worse. And I think possibly there has been an example of some of the assumptions have overcooked life expectancy under undercooked, the effects of Covid and so forth. So look, there's a balance to be struck between overoptimism on one hand and excessive prudence on the other.
It's a complicated scheme, but what this amendment does is work out a method by which we can communicate that texture in language, that the man in the street can understand, that taxpayers can be reassured they're not being overtaxed, but the members can be reassured that over the life, the total liabilities of the whole scheme, they will be paid out in full at the right, at the right moment. It's as I said in the previous group, the LGPS is the closest thing we've got to a sovereign wealth fund, and it's important that we don't take excessive pessimism bias, as I think the story of the last 20 years has shown.
**** Possible New Speaker ****
I don't really mean to be unkind to the movers of this particular to the movers of this particular amendment, but it is, in my view, amendment, but it is, in my view, nonsense. I have to confirm that as a noble Lord, Lord Fuller explained. a noble Lord, Lord Fuller explained. I am a fellow of the Institute of Actuaries and. And be honest, this amendment is actually more work for actuaries. On the face of it. Who is going to do these independent assessments? Presumably people who know what the technical nature of a pension scheme is.
So that accent. Maybe I'm not against the amendment, but it's it's it's suggesting that it should be benchmarked against two things which are relevant. The scheme is not insured, the government scheme, but the scheme is not insured, invested totally in
Now, when I first joined the Norfolk scheme, as I said in the previous group, 20 years ago, there were about 70 admitted bodies. There are now 500. It's extraordinarily complicated nationally on the whole LGPS basis, there are 6160 scheduled bodies, 3639 admitted bodies, four, seven, eight designated designated bodies. I don't know what they are. I think it might be the Environment Agency and 40 15,049 employers with active members. So I think the key thing is as as in support of my noble friend Baroness Stedman-Scott, when we look at all these contribution rates, it isn't just taking the scheme in aggregate.
We do have to drill down and see all the particular liabilities for each employer in the scheme. And now, my Lords, I'm drifting into the complication that we often hear so much about, which is used to obfuscate the scheme. What I really like about this amendment is that it stops people who know about local government pension schemes from hiding behind that complexity, that obfuscation. It will require members to publish in plain language how the numbers are arrived at and what this amendment seeks to achieve.
Now, again, to repeat on some of my history when I first joined the Norfolk scheme is a good example. We were 79% funded. We shovelled in cash like it was going out of fashion. Now, 20 years later, we're 130% funded. In the last three years, it's gone up 25%. And these big swings militate against stability and sustainability. I think we can say that over the years, there has been a pessimism bias, which has meant that council tax and councils and those admitted bodies have put much, much more money into the scheme.
And partly, I think there was a groupthink from some of the from the regulators which forced us down this path. There is a lot of. But I do want to provide reassurance. When you look at the assumptions that I've been involved in and over. Five Triennial Re-evaluations now there's a fan of opportunities. Scenarios that the actuaries run each. On the membership of the scheme, the sponsoring employers, even the life expectancy of members calibrated by postcode. So with about a thousand different scenarios in the scheme that I have seen, of course, one of those scenarios is a wipe-out scenario.
We should not confuse a scenario with a likelihood. And I think what has happened with the benefit of hindsight is that the extreme cases have been taken. They sort of split it in the middle, whereas in fact, actually there was much more clustering around the middle and we wouldn't have had to put in so much. That's why this amendment is going to look much more focussed at the funding strategy or funding strategy, said the funding strategy statement. And and I think that way we can take into account what the true costs are.
And also, and I'm reminded, seeing the Lord Davies of Gower, who's an actuary and I'm going to repeat because I gave it in the grand committee, it was a small audience. I'm going to repeat the old joke again. The old actuaries, we're all living longer and it's getting worse. And I think possibly there has been an example of some of the assumptions have overcooked life expectancy under undercooked, the effects of Covid and so forth. So look, there's a balance to be struck between overoptimism on one hand and excessive prudence on the other.
It's a complicated scheme, but what this amendment does is work out a method by which we can communicate that texture in language, that the man in the street can understand, that taxpayers can be reassured they're not being overtaxed, but the members can be reassured that over the life, the total liabilities of the whole scheme, they will be paid out in full at the right, at the right moment. It's as I said in the previous group, the LGPS is the closest thing we've got to a sovereign wealth fund, and it's important that we don't take excessive pessimism bias, as I think the story of the last 20 years has shown.
**** Possible New Speaker ****
I don't really mean to be unkind to the movers of this particular to the movers of this particular amendment, but it is, in my view, amendment, but it is, in my view, nonsense. I have to confirm that as a noble Lord, Lord Fuller explained. a noble Lord, Lord Fuller explained. I am a fellow of the Institute of Actuaries and. And be honest, this amendment is actually more work for actuaries. On the face of it. Who is going to do these independent assessments? Presumably people who know what the technical nature of a pension scheme is.
So that accent. Maybe I'm not against the amendment, but it's it's it's suggesting that it should be benchmarked against two things which are relevant. The scheme is not insured, the government scheme, but the scheme is not insured, invested totally in
16:58
Lord Davies of Brixton (Labour)
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Lord Davies of Brixton (Labour)
gilt edged securities. Now, you could calculate those figures. But what do those figures tell you? what do those figures tell you? They tell you absolutely nothing. The fundamental problem with this The fundamental problem with this proposal is that it's the administering authorities that decide on the contribution rate. decide on the contribution rate. It's not the actuary. It's not the actuary who decides how much actuary who decides how much prudence should be in the figures. The actuary provides advice and the administering authority decides.
Now, if for whatever reason, the administering authorities feel that they don't have enough control over the situation. That's a matter for them to sort out. It does not require legislation to say that administering authorities should do their job. It's already their job and they should get on and do it. And as a final point. Even if prudence, an appropriate level of prudence is applied in deciding on the contribution rate, that money for the sake of prudence is paid into the fund.
It's not lost. It's not disappeared. It's still available and will be available for the purposes of the scheme and will be taken into account the next time there's a valuation. Valuations roll on one to the other. And if perchance because of incorrect advice, a bit too much money is put in initially, it's there at the next valuation and it's taken into account. And presumably as long as the administering authority is doing its job, it will adjust the contribution rate appropriately.
So what we have here is additional unnecessary bureaucracy. And as far as I can see, the only people who advisers.
Now, if for whatever reason, the administering authorities feel that they don't have enough control over the situation. That's a matter for them to sort out. It does not require legislation to say that administering authorities should do their job. It's already their job and they should get on and do it. And as a final point. Even if prudence, an appropriate level of prudence is applied in deciding on the contribution rate, that money for the sake of prudence is paid into the fund.
It's not lost. It's not disappeared. It's still available and will be available for the purposes of the scheme and will be taken into account the next time there's a valuation. Valuations roll on one to the other. And if perchance because of incorrect advice, a bit too much money is put in initially, it's there at the next valuation and it's taken into account. And presumably as long as the administering authority is doing its job, it will adjust the contribution rate appropriately.
So what we have here is additional unnecessary bureaucracy. And as far as I can see, the only people who advisers.
17:00
Lord Palmer of Childs Hill (Liberal Democrat)
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Lord Palmer of Childs Hill (Liberal Democrat)
Yeah, that's the surprise. My my >> Yeah, that's the surprise. My my
**** Possible New Speaker ****
Yeah, that's the surprise. My my my. My laws. The this group asked for greater transparency about local government pension scheme valuations by requiring benchmarking against insurer pricing and guilt based discount rates, with clearer explanations. Where more prudent assumptions are used, there is value in greater openness and compatibility, but there is also a risk in appearing to imply that one benchmark can neatly settle what is, in practice, a complex actuarial judgement. I was taken by the contribution by the noble Lord Davis, with his work really killing this amendment off by saying it gives no more work for actuaries.
But but the the tendency, then, is for the actress to say. On the one hand, this. On the other hand, that. And very often the advice is not that 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 do need clearer information. Evaluation choices materially affect contribution rates, local authority budgets and ultimately local services. 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 differ from very much differ from closed private arrangements. So while comparison can illuminate, it must not, as is the danger, mislead. A benchmark should be a tool for understanding, not a backdoor instruction about how every evaluation ought to be done. That is why on these benches we are cautious. We are sympathetic to cause to call for clearer publication, accessible material and meaningful consultation.
We are sadly less persuaded by any suggestion that the right answer can be derived by mechanically comparing one prudence basis with another prudence basis. The real issue is whether assumptions are evidence based, proportionate and properly explained. If the government believed the present system already secures that, then show it. And I hope the Minister, when they reply, will do that. If not, there is merit in considering reforms that improve transparency without oversimplifying the technical process. On that basis, on these benches, we do not oppose the spirit of scrutiny here, but nor are we convinced that this amendment, as drafted is a full answer and therefore not against what it says in the amendment.
But we would not be supporting it if it is moved to a vote. Well.
**** Possible New Speaker ****
Yeah, that's the surprise. My my my. My laws. The this group asked for greater transparency about local government pension scheme valuations by requiring benchmarking against insurer pricing and guilt based discount rates, with clearer explanations. Where more prudent assumptions are used, there is value in greater openness and compatibility, but there is also a risk in appearing to imply that one benchmark can neatly settle what is, in practice, a complex actuarial judgement. I was taken by the contribution by the noble Lord Davis, with his work really killing this amendment off by saying it gives no more work for actuaries.
But but the the tendency, then, is for the actress to say. On the one hand, this. On the other hand, that. And very often the advice is not that 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 do need clearer information. Evaluation choices materially affect contribution rates, local authority budgets and ultimately local services. 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 differ from very much differ from closed private arrangements. So while comparison can illuminate, it must not, as is the danger, mislead. A benchmark should be a tool for understanding, not a backdoor instruction about how every evaluation ought to be done. That is why on these benches we are cautious. We are sympathetic to cause to call for clearer publication, accessible material and meaningful consultation.
We are sadly less persuaded by any suggestion that the right answer can be derived by mechanically comparing one prudence basis with another prudence basis. The real issue is whether assumptions are evidence based, proportionate and properly explained. If the government believed the present system already secures that, then show it. And I hope the Minister, when they reply, will do that. If not, there is merit in considering reforms that improve transparency without oversimplifying the technical process. On that basis, on these benches, we do not oppose the spirit of scrutiny here, but nor are we convinced that this amendment, as drafted is a full answer and therefore not against what it says in the amendment.
But we would not be supporting it if it is moved to a vote. Well.
17:04
Lord Katz (Labour)
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Lord Katz (Labour)
I thank the noble Lord, Lord Viscount Younger of Leckie, for this amendment moved by the noble this amendment moved by the noble Lady Baroness Stedman-Scott very ably. It seeks to improve transparency around the assumptions and the level of prudence applied in LGPS actual variations, including through the introduction of additional bench benchmarks. When. Also, 2025 triennial valuation will conclude on the 1st of April, and at present we do not have a complete picture of its outcomes across the 87 different funds and more than 20,000 employees in the scheme.
So the amendment seeks to prescribe remedies before any diagnosis has been made, 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. This report assesses whether employer contributions have been set at levels appropriate to ensure solvency and long term cost efficiency. The fund's valuations comply with the regulations and the degree of consistency between them. Recommendations are then taken forward by the Ministry of Housing, Communities and Local Government and by the Scheme Advisory Board.
Officials are already engaging with the government Actuary's department, who are targeting a publication date of spring 2027 for their report and recommendations. Your Lordships' House will be pleased to hear this is earlier than previous valuations, which I hope demonstrates the seriousness with which we are taking issues raised by noble Lords in committee. The government Actuary's Department will engage widely with funds, actuaries and advisers to develop a comprehensive understanding of the 2025 valuation. My Lord Oates is appropriate for different funds and their advisers to use different discount rates, reflecting variations in risk appetite, employer profile and investment mix.
It's helpful to understand how these approaches compare across the sector. The section 13 review uses benchmarks to place local variations on a comparable footing and may, in the first instance, provide useful insight into funds decision making. My Lords, there is a delicate balance to be struck. Members benefits are guaranteed in statute, but funds must ensure they hold sufficient resources to pay those benefits over the long term through investment income and contributions. My noble friend Lord Davis is is is right in his essentially the his his assertion that actuaries advise and funds decide and I would salute in making his contributions forbearance in in not arguing for the interests of the National Union of Actuaries, of which I'm sure he's a he's a founder member, or at least all ought to be.
If there ought to be. If it doesn't exist, to be clear on prudence. And we heard a fair amount of on on, on, on prudence as as we did in committee from the noble Lord Lord Fuller, using his experience. But in a locally managed scheme it is for funds to work with their actuarial advisors and employers to set a contribution rate that supports the long term viability of employers and of the fund. And the section 13 report prepared by Gad will consider questions of prudence.
That is how the discount rate is set and how stability is applied to contribution rates. For the government to set correct valuation assumptions would risk undermining the principle that is, funds and expert actuarial advisors who are responsible for ensuring the long term sustainability. A push for greater intervention at the valuation risk, moving from a locally managed scheme to a centrally managed scheme. And we heard much about that in the previous in the previous discussion on the on the previous group of amendments.
The implications here are real and far reaching, decreasing rather than increasing the role for locally elected representatives on transparency, this amendment would require additional detail on assumptions and benchmarks in the funding strategy statements, and for these to be communicated in a more user friendly way, I believe we are broadly aligned on the value of valuation reports and supporting material like funding strategy statements being easier to understand for the lay reader. There is. My Lords, there is already transparency in the process.
Administering authorities should consult all employers in the fund on their funding strategy statement. This statement should outline how surpluses and deficits will be managed, the approach to contribution stability, and summarises the main actuarial assumptions used at the valuation. To to to respond to Lord Fuller. The funding strategy statement is consulted on and and and the SAB guidance already says the purpose of the EFS is to establish a clear and transparent strategy that explains how liabilities will be met and explains how the fund balances the interests of different employers.
My Lords, we must not jump to conclusions about how the valuation has played out for every fund and employer. There are good examples of good practice, including meaningful employer consultation and capable pension committees, with the confidence to interrogate their actuaries. Advice to fully understand proposed contribution rates. And I would say that I would quote at this point Roger Phillips, who's chair of the LGPS Scheme Advisory Board, who said about the treatment of surplus in his evidence to the committee in the in the other place, on the bill.
We live in a very volatile situation, and circumstances can change. You have to be careful because if you reduce contribution rates considerably, then it's a great benefit at this moment in time. But if you turn around and start to increase them again, that can be very difficult for all employers to deal with, including local government. My Lords, until the valuation has concluded, we cannot reach a definitive view on how interpretation of regulations and guidance and the quality of employer consultation has shaped the results that will apply from the 1st of April.
As part of its review, the government will ask the government Actuary's Department to particularly focus on methods for managing risk and reflecting the long term funding objectives of the scheme, including discount rates, application of stability mechanisms and buffers, and the effectiveness of employer engagement. I've committed to additional work with the guide on how discount rates and the application of stability mechanisms affects contribution rates, and whether employer engagement processes are operating effectively. Following the publication of the section 13 report, the Ministry of Housing, Communities and Local Government will undertake a review of the regulations and guidance governing the training evaluation ahead of the 2028 valuation.
I appreciate that your Lordships House may wish for more immediate action, but we must ensure that we are in possession of the valuation results before we determine the right course of action. I therefore would ask the noble Lord Viscount Younger indeed, the noble Lady Baroness Stedman-Scott, whichever of them. But I invite one of them to withdraw their amendment.
So the amendment seeks to prescribe remedies before any diagnosis has been made, 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. This report assesses whether employer contributions have been set at levels appropriate to ensure solvency and long term cost efficiency. The fund's valuations comply with the regulations and the degree of consistency between them. Recommendations are then taken forward by the Ministry of Housing, Communities and Local Government and by the Scheme Advisory Board.
Officials are already engaging with the government Actuary's department, who are targeting a publication date of spring 2027 for their report and recommendations. Your Lordships' House will be pleased to hear this is earlier than previous valuations, which I hope demonstrates the seriousness with which we are taking issues raised by noble Lords in committee. The government Actuary's Department will engage widely with funds, actuaries and advisers to develop a comprehensive understanding of the 2025 valuation. My Lord Oates is appropriate for different funds and their advisers to use different discount rates, reflecting variations in risk appetite, employer profile and investment mix.
It's helpful to understand how these approaches compare across the sector. The section 13 review uses benchmarks to place local variations on a comparable footing and may, in the first instance, provide useful insight into funds decision making. My Lords, there is a delicate balance to be struck. Members benefits are guaranteed in statute, but funds must ensure they hold sufficient resources to pay those benefits over the long term through investment income and contributions. My noble friend Lord Davis is is is right in his essentially the his his assertion that actuaries advise and funds decide and I would salute in making his contributions forbearance in in not arguing for the interests of the National Union of Actuaries, of which I'm sure he's a he's a founder member, or at least all ought to be.
If there ought to be. If it doesn't exist, to be clear on prudence. And we heard a fair amount of on on, on, on prudence as as we did in committee from the noble Lord Lord Fuller, using his experience. But in a locally managed scheme it is for funds to work with their actuarial advisors and employers to set a contribution rate that supports the long term viability of employers and of the fund. And the section 13 report prepared by Gad will consider questions of prudence.
That is how the discount rate is set and how stability is applied to contribution rates. For the government to set correct valuation assumptions would risk undermining the principle that is, funds and expert actuarial advisors who are responsible for ensuring the long term sustainability. A push for greater intervention at the valuation risk, moving from a locally managed scheme to a centrally managed scheme. And we heard much about that in the previous in the previous discussion on the on the previous group of amendments.
The implications here are real and far reaching, decreasing rather than increasing the role for locally elected representatives on transparency, this amendment would require additional detail on assumptions and benchmarks in the funding strategy statements, and for these to be communicated in a more user friendly way, I believe we are broadly aligned on the value of valuation reports and supporting material like funding strategy statements being easier to understand for the lay reader. There is. My Lords, there is already transparency in the process.
Administering authorities should consult all employers in the fund on their funding strategy statement. This statement should outline how surpluses and deficits will be managed, the approach to contribution stability, and summarises the main actuarial assumptions used at the valuation. To to to respond to Lord Fuller. The funding strategy statement is consulted on and and and the SAB guidance already says the purpose of the EFS is to establish a clear and transparent strategy that explains how liabilities will be met and explains how the fund balances the interests of different employers.
My Lords, we must not jump to conclusions about how the valuation has played out for every fund and employer. There are good examples of good practice, including meaningful employer consultation and capable pension committees, with the confidence to interrogate their actuaries. Advice to fully understand proposed contribution rates. And I would say that I would quote at this point Roger Phillips, who's chair of the LGPS Scheme Advisory Board, who said about the treatment of surplus in his evidence to the committee in the in the other place, on the bill.
We live in a very volatile situation, and circumstances can change. You have to be careful because if you reduce contribution rates considerably, then it's a great benefit at this moment in time. But if you turn around and start to increase them again, that can be very difficult for all employers to deal with, including local government. My Lords, until the valuation has concluded, we cannot reach a definitive view on how interpretation of regulations and guidance and the quality of employer consultation has shaped the results that will apply from the 1st of April.
As part of its review, the government will ask the government Actuary's Department to particularly focus on methods for managing risk and reflecting the long term funding objectives of the scheme, including discount rates, application of stability mechanisms and buffers, and the effectiveness of employer engagement. I've committed to additional work with the guide on how discount rates and the application of stability mechanisms affects contribution rates, and whether employer engagement processes are operating effectively. Following the publication of the section 13 report, the Ministry of Housing, Communities and Local Government will undertake a review of the regulations and guidance governing the training evaluation ahead of the 2028 valuation.
I appreciate that your Lordships House may wish for more immediate action, but we must ensure that we are in possession of the valuation results before we determine the right course of action. I therefore would ask the noble Lord Viscount Younger indeed, the noble Lady Baroness Stedman-Scott, whichever of them. But I invite one of them to withdraw their amendment.
17:10
Baroness Stedman-Scott (Conservative)
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Baroness Stedman-Scott (Conservative)
Got me. I didn't mean it for >> Got me. I didn't mean it for that to happen. Just to clarify matters, my Lords, I'm grateful to all noble Lords who have all noble Lords who have contributed to this debate, and I want to thank the noble Lord Katz, the Minister, for his response. What has become clear in the course of our discussion is 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 those pressures have 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've heard from employers, from advisors and from those operating within the system suggest it is an issue which requires attention. This is not something we've plucked out the air.
It's not something that we've made up, and it's not something we haven't brought to to the to the chamber today based on a whim. It is from actual in interviews and, and meetings that we've had with experts in the system to say, this is something that really does need looking at. We were told about one one local government pension scheme, 189% provided for. And I think that in itself, whilst we've got to be careful and we've got to balance things and we've got to rely on the experts, that's 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 contributions are being set at excessively prudent levels are simply left to drift until the next review cycle arrives. And for those reasons, we believe this amendment addresses an issue which is real, immediate and important. It introduces transparency where transparency is needed, and it does so in a way that's constructive and proportionate.
When my amendment is called, I will therefore seek to test the opinion of the House.
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Baroness Stedman-Scott the question is that amendment nine be agreed to, as many as are of that
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opinion will say content the contrary, not content. Not content. The question will be decided by a division. I will advise the House a division. I will advise the House when voting is open. Voting is now
It is about the very real pressure being felt by employers across the local government pension scheme and the consequences those pressures have 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've heard from employers, from advisors and from those operating within the system suggest it is an issue which requires attention. This is not something we've plucked out the air.
It's not something that we've made up, and it's not something we haven't brought to to the to the chamber today based on a whim. It is from actual in interviews and, and meetings that we've had with experts in the system to say, this is something that really does need looking at. We were told about one one local government pension scheme, 189% provided for. And I think that in itself, whilst we've got to be careful and we've got to balance things and we've got to rely on the experts, that's 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 contributions are being set at excessively prudent levels are simply left to drift until the next review cycle arrives. And for those reasons, we believe this amendment addresses an issue which is real, immediate and important. It introduces transparency where transparency is needed, and it does so in a way that's constructive and proportionate.
When my amendment is called, I will therefore seek to test the opinion of the House.
**** Possible New Speaker ****
Baroness Stedman-Scott the question is that amendment nine be agreed to, as many as are of that
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opinion will say content the contrary, not content. Not content. The question will be decided by a division. I will advise the House a division. I will advise the House when voting is open. Voting is now
17:13
Division
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Yes. Yes. Great.
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Question Question is.
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Question is. Question is. The Question is. The question Question is. The question is that amendment nine be agreed to?
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that amendment nine be agreed to? As many as are of that opinion will say content. Content. Of the contrary, not content. not content.
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The contents will go to the right by the throne. The not content to the left by the bar. content to the left by the bar. No.
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Wow. The question is that amendment By By Lords. By Lords. There have voted contents 201 not contents 177. So the contents have Amendment Amendment ten Amendment ten the Amendment ten the Viscount Younger of Leckie not moved. Amendment 11 Viscount Younger not
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Younger. My Lords, I rise to address
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My Lords, I rise to address amendment 12 standing in my name and that of my noble friend, Lady Stephen Scott. This amendment Stephen Scott. This amendment addresses an issue that sits at the very centre of the concerns that we have raised throughout the passage have raised throughout the passage of this bill, namely, how contribution rates in the Local Government pension scheme are set, Government pension scheme are set, reviews and scrutinised. And this debate will take us further than the previous debate on a related issue.
Throughout the passage of this bill, we've 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, and we've touched on that
Division
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Yes. Yes. Great.
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Question Question is.
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Question is. Question is. The Question is. The question Question is. The question is that amendment nine be agreed to?
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that amendment nine be agreed to? As many as are of that opinion will say content. Content. Of the contrary, not content. not content.
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The contents will go to the right by the throne. The not content to the left by the bar. content to the left by the bar. No.
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Wow. The question is that amendment By By Lords. By Lords. There have voted contents 201 not contents 177. So the contents have Amendment Amendment ten Amendment ten the Amendment ten the Viscount Younger of Leckie not moved. Amendment 11 Viscount Younger not
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Younger. My Lords, I rise to address
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My Lords, I rise to address amendment 12 standing in my name and that of my noble friend, Lady Stephen Scott. This amendment Stephen Scott. This amendment addresses an issue that sits at the very centre of the concerns that we have raised throughout the passage have raised throughout the passage of this bill, namely, how contribution rates in the Local Government pension scheme are set, Government pension scheme are set, reviews and scrutinised. And this debate will take us further than the previous debate on a related issue.
Throughout the passage of this bill, we've 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, and we've touched on that
17:25
Amendment: 12
Viscount Younger of Leckie (Conservative)
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Amendment: 12
Viscount Younger of Leckie (Conservative)
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 careful and responsible approach. And I do feel sure that when or if he chooses to speak, the noble Lord Alderdice, I am sure will have something to say on this particular 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 the scheme. The noble Lord Lord Katz alluded to this in a previous debate, but at present employer contribution rates are set through the actuarial valuation cycle, which takes place, as you may have said every three years, note every three years that process is well established and plays an important role in maintaining the long term stability of the scheme.
But, my Lords, it also means that once those rates are set, employers can find themselves locked into them for a considerable period of time, even if the financial circumstances of the scheme or of the employer itself change significantly during that interval, and that rigidity is increasingly difficult to justify. We believe we know that financial conditions can change quickly. Employer finances can change. Liabilities can change, market conditions can shift. And we know that from recent experience. Yet under the current framework, the mechanisms for reviewing contribution rates between valuation cycles are limited and in practice, often opaque.
So a member 12 seeks to address that problem by creating a clearer and more transparent framework for reviewing employer contribution rates earlier when circumstances change. So under this amendment, administering authorities would be able to carry out an interim review of contribution rates where there has been a significant change in scheme liabilities, where there has been a significant change in an employer's financial position, or where an employer formally requests a review and agrees to cover the reasonable costs of undertaking it.
And we believe this is a very reasonable and sensible change. It makes the process more accessible to employers who believe that the contribution rates they are being asked to pay no longer reflect reality. It recognises that financial circumstances do not move neatly in three year cycles and nor do they, and it allows the system to respond when material changes occur. But the amendment goes further than simply enabling reviews. It also strengthens transparency around the actuarial assumptions that underpin those decisions, and that level of transparency is essential.
Again, as was debated in the last group, contribution rates have very real consequences for employers participating in the scheme. The local authorities, academies, housing associations and many others. Those organisations must plan budgets, must allocate resources and deliver services on the basis of the cost that they are required to meet. They should therefore be able to understand the assumptions and methodologies that determine those costs. So this amendment helps to ensure that contribution rates can respond to changing financial circumstances.
It ensures that employers are not locked into potentially outdated rates for three years at a time, and it ensures that the actuarial assumptions underlying those decisions are transparent and, very importantly, open to scrutiny. And ultimately, my Lords, this is about responsibility. We all expect public bodies to act responsibly when they handle public money, and pension funds are no exception. They manage, as we have heard before, very substantial sums of money, and the decisions taken within those systems have consequences not only for scheme members, but also for employers and taxpayers.
With responsibility must come transparency, and with responsibility must come accountability. And where contribution requirements change or are reviewed, the assumptions behind those decisions should be visible and understandable. But crucially, my Lords, this amendment does not undermine the role of actuaries, nor does it weaken the prudence that underpins pension funding. What it does is to ensure that the system remains responsive, more flexible, transparent and accountable to those who are required to fund it. So for those reasons, I do believe that this amendment represents a constructive and necessary improvement to the framework governing the local local government pension scheme, and I do urge the government to adopt it.
I will, of course, listen very carefully to the debate, short or long, that is upcoming. But I do give notice that I am minded to test the opinion of the House.
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Or would like to move an amendment. Member proposed after clause seven. Insert the new clause clause seven. Insert the new clause
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 the scheme. The noble Lord Lord Katz alluded to this in a previous debate, but at present employer contribution rates are set through the actuarial valuation cycle, which takes place, as you may have said every three years, note every three years that process is well established and plays an important role in maintaining the long term stability of the scheme.
But, my Lords, it also means that once those rates are set, employers can find themselves locked into them for a considerable period of time, even if the financial circumstances of the scheme or of the employer itself change significantly during that interval, and that rigidity is increasingly difficult to justify. We believe we know that financial conditions can change quickly. Employer finances can change. Liabilities can change, market conditions can shift. And we know that from recent experience. Yet under the current framework, the mechanisms for reviewing contribution rates between valuation cycles are limited and in practice, often opaque.
So a member 12 seeks to address that problem by creating a clearer and more transparent framework for reviewing employer contribution rates earlier when circumstances change. So under this amendment, administering authorities would be able to carry out an interim review of contribution rates where there has been a significant change in scheme liabilities, where there has been a significant change in an employer's financial position, or where an employer formally requests a review and agrees to cover the reasonable costs of undertaking it.
And we believe this is a very reasonable and sensible change. It makes the process more accessible to employers who believe that the contribution rates they are being asked to pay no longer reflect reality. It recognises that financial circumstances do not move neatly in three year cycles and nor do they, and it allows the system to respond when material changes occur. But the amendment goes further than simply enabling reviews. It also strengthens transparency around the actuarial assumptions that underpin those decisions, and that level of transparency is essential.
Again, as was debated in the last group, contribution rates have very real consequences for employers participating in the scheme. The local authorities, academies, housing associations and many others. Those organisations must plan budgets, must allocate resources and deliver services on the basis of the cost that they are required to meet. They should therefore be able to understand the assumptions and methodologies that determine those costs. So this amendment helps to ensure that contribution rates can respond to changing financial circumstances.
It ensures that employers are not locked into potentially outdated rates for three years at a time, and it ensures that the actuarial assumptions underlying those decisions are transparent and, very importantly, open to scrutiny. And ultimately, my Lords, this is about responsibility. We all expect public bodies to act responsibly when they handle public money, and pension funds are no exception. They manage, as we have heard before, very substantial sums of money, and the decisions taken within those systems have consequences not only for scheme members, but also for employers and taxpayers.
With responsibility must come transparency, and with responsibility must come accountability. And where contribution requirements change or are reviewed, the assumptions behind those decisions should be visible and understandable. But crucially, my Lords, this amendment does not undermine the role of actuaries, nor does it weaken the prudence that underpins pension funding. What it does is to ensure that the system remains responsive, more flexible, transparent and accountable to those who are required to fund it. So for those reasons, I do believe that this amendment represents a constructive and necessary improvement to the framework governing the local local government pension scheme, and I do urge the government to adopt it.
I will, of course, listen very carefully to the debate, short or long, that is upcoming. But I do give notice that I am minded to test the opinion of the House.
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Or would like to move an amendment. Member proposed after clause seven. Insert the new clause clause seven. Insert the new clause
17:30
Deputy Lord Speaker
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Deputy Lord Speaker
as printed on the Marshalled List. >> My Lords, I rise to support this
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My Lords, I rise to support this amendment and I think it is a really important time to be talking really important time to be talking about the contribution rates for local government pension schemes. Having an interim review at a time
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My Lords, I rise to support this amendment and I think it is a really important time to be talking really important time to be talking about the contribution rates for local government pension schemes. Having an interim review at a time
17:30
Baroness Altmann (Non-affiliated)
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Baroness Altmann (Non-affiliated)
when funding has changed so substantially in a very short period of time clearly makes sense, not only for the local authority itself, but also for the council tax payer. What we are seeing at tax payer. What we are seeing at the moment, as we heard in previous debate, is councils with debate, is councils with significant surpluses continuing to spend council tax income on pension contributions to firms that don't need them because they are insignificant surplus.
And also, my Lords, the idea that contributions are fixed for a period of time when significant changes can have been made and a three year cycle underestimates the time frame 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 then for the contribution rates to be set.
So it could be easily four years behind and a lot can happen and has happened in that time frame. My Lords, I hope that the government will accept that this principle of allowing councils to be more flexible with the revenue that they receive from council taxes actually could benefit local authorities and the country as a whole, because we know that council taxes have been forced to increase due to the lack of ability of councils to meet their basic spending.
But if the amounts that they spend on pension contributions could be spent instead on social care or on other local authority needs, that would mean they would have to raise less money from local residents, which would improve the local economy, as tax rates would not be so high and also require less money from the central government. Therefore, the pressure on public spending itself could be ameliorated. Now, I know that there is a principle of trying to achieve what's called stability in contribution rates, so that they don't change too much from one year to the next.
But when there are significant changed circumstances, it seems to me that forcing schemes to, if you like, fiddle the assumptions on which the scheme funding is based so that they can somehow justify maintaining contributions to a fund which in the private sector would not need the money and would normally be having a contribution. Holiday strikes me as not serving the best interests of either the local or the national economy. So a review of how pension contribution rates are set at local authority level is something that is probably long overdue, given the big changes that we have seen and could actually, I would argue, help the government in terms of some of the funding strains that it has been feeling and its desire to improve growth.
If a local authority is spending, say, 20% or more of its council tax revenue on putting money into a pension scheme that does not need it, and if that pension scheme itself is underwritten by the government anyway, so the member's benefits are not at risk. You have a very different scenario from that which a private sector employers, trustees might be facing, whereby if the contributions stop and then the employer gets into trouble, there's nothing much that can be done to perhaps ameliorate the position for members.
But in a local authority pension scheme, that risk does not really exist. As I say, there is no contribution to the Pension protection fund. There is no underwriting. This is guaranteed by taxpayers. So why not? If you're raising taxpayer revenue from council tax, simply use it where it is actually needed rather than putting it where it is not needed for now. And you can always come back and impose contributions later when or if the funding position changes.
But the scheme is not going to run out of money in any short term period. That's not how pension schemes work. So I do hope the government might listen to the logic of this amendment, so ably moved by my noble friend on
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the front bench. Well, I think the noble Lords
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Well, I think the noble Lords are noble Lady. Rather sorry, noble Lord, it's you're not that alike. Lord, it's you're not that alike. Honestly. The noble Lord Viscount Younger of Leckie for his amendment. And of course I share the interest in ensuring the interim valuations are accessible and transparent for are accessible and transparent for all employers in this scheme. My Lords Amendment 12 proposes to change changes to regulation 64 A of the 2013 Local Government Pension Scheme Regulations, which concerns valuations carried out outside of the triennial valuation cycle.
At Committee stage, I committed that the government will consult on changes to 64 A this year, and we will consider the matters raised as part of that consultation. I reiterate the point that I made at 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 from 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 also aims for additional transparency. In a similar vein to the other amendments we have, we have discussed this afternoon. Noble Lord should note that the policy on valuation contribution reviews is set out in the Funding Strategy statement on which employers are consulted.
Noble Baroness Lady Altman spoke. And as in detail about the the the the time lag evaluations and the impact of of of of of of of events in the financial cycle. And, you know, as, as everyone can be aware, aware
And also, my Lords, the idea that contributions are fixed for a period of time when significant changes can have been made and a three year cycle underestimates the time frame 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 then for the contribution rates to be set.
So it could be easily four years behind and a lot can happen and has happened in that time frame. My Lords, I hope that the government will accept that this principle of allowing councils to be more flexible with the revenue that they receive from council taxes actually could benefit local authorities and the country as a whole, because we know that council taxes have been forced to increase due to the lack of ability of councils to meet their basic spending.
But if the amounts that they spend on pension contributions could be spent instead on social care or on other local authority needs, that would mean they would have to raise less money from local residents, which would improve the local economy, as tax rates would not be so high and also require less money from the central government. Therefore, the pressure on public spending itself could be ameliorated. Now, I know that there is a principle of trying to achieve what's called stability in contribution rates, so that they don't change too much from one year to the next.
But when there are significant changed circumstances, it seems to me that forcing schemes to, if you like, fiddle the assumptions on which the scheme funding is based so that they can somehow justify maintaining contributions to a fund which in the private sector would not need the money and would normally be having a contribution. Holiday strikes me as not serving the best interests of either the local or the national economy. So a review of how pension contribution rates are set at local authority level is something that is probably long overdue, given the big changes that we have seen and could actually, I would argue, help the government in terms of some of the funding strains that it has been feeling and its desire to improve growth.
If a local authority is spending, say, 20% or more of its council tax revenue on putting money into a pension scheme that does not need it, and if that pension scheme itself is underwritten by the government anyway, so the member's benefits are not at risk. You have a very different scenario from that which a private sector employers, trustees might be facing, whereby if the contributions stop and then the employer gets into trouble, there's nothing much that can be done to perhaps ameliorate the position for members.
But in a local authority pension scheme, that risk does not really exist. As I say, there is no contribution to the Pension protection fund. There is no underwriting. This is guaranteed by taxpayers. So why not? If you're raising taxpayer revenue from council tax, simply use it where it is actually needed rather than putting it where it is not needed for now. And you can always come back and impose contributions later when or if the funding position changes.
But the scheme is not going to run out of money in any short term period. That's not how pension schemes work. So I do hope the government might listen to the logic of this amendment, so ably moved by my noble friend on
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the front bench. Well, I think the noble Lords
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Well, I think the noble Lords are noble Lady. Rather sorry, noble Lord, it's you're not that alike. Lord, it's you're not that alike. Honestly. The noble Lord Viscount Younger of Leckie for his amendment. And of course I share the interest in ensuring the interim valuations are accessible and transparent for are accessible and transparent for all employers in this scheme. My Lords Amendment 12 proposes to change changes to regulation 64 A of the 2013 Local Government Pension Scheme Regulations, which concerns valuations carried out outside of the triennial valuation cycle.
At Committee stage, I committed that the government will consult on changes to 64 A this year, and we will consider the matters raised as part of that consultation. I reiterate the point that I made at 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 from 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 also aims for additional transparency. In a similar vein to the other amendments we have, we have discussed this afternoon. Noble Lord should note that the policy on valuation contribution reviews is set out in the Funding Strategy statement on which employers are consulted.
Noble Baroness Lady Altman spoke. And as in detail about the the the the time lag evaluations and the impact of of of of of of of events in the financial cycle. And, you know, as, as everyone can be aware, aware
17:38
Government Spokes.
Lord Katz (Labour)
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Government Spokes.
Lord Katz (Labour)
from geopolitical events, markets can vary from one day to the other, simply requesting evaluation on the simply requesting evaluation on the basis of a change in the day's markets would be excessive. And indeed, many funding strategy statements state this the current statements state this the current regulations provide for interim valuations on the basis of changes in liabilities or covenant. The in liabilities or covenant. The risk of liabilities not being met is that the burden actually goes up on not not on government, but up on on not not on government, but up on the council taxpayer.
As a council who may not be in a good financial position, as the noble Baroness says, needs to increase council tax to cover liabilities. The government does not underwrite the scheme. Your Lordships' House should also remember that 50% of LGPS employers contribute. Contributions are not from local authorities. So we are not talking about as a situation where it is exclusively local authorities who could cope with the change. And I would say, and I did say this at committee, I didn't want to.
And I could have said this in response to the previous group as well, but it's it's marvellous to see the benches opposite show concern now about the funding of local authorities. We're concerned about it. I've said all ourselves, we were concerned about it for the previous 14 years, when I would say the opposite, when they were in government, had I would I would say, a differing view. When it came to imposing austerity on local government. But there we are. I'll say no more.
And I apologies to your Lordships' House. I couldn't help myself having been very good on the previous group, I hope my response demonstrates that government has considered the points raised through this amendment carefully, and therefore would ask the noble Lord Viscount Younger of Lecce to withdraw amendment 12.
As a council who may not be in a good financial position, as the noble Baroness says, needs to increase council tax to cover liabilities. The government does not underwrite the scheme. Your Lordships' House should also remember that 50% of LGPS employers contribute. Contributions are not from local authorities. So we are not talking about as a situation where it is exclusively local authorities who could cope with the change. And I would say, and I did say this at committee, I didn't want to.
And I could have said this in response to the previous group as well, but it's it's marvellous to see the benches opposite show concern now about the funding of local authorities. We're concerned about it. I've said all ourselves, we were concerned about it for the previous 14 years, when I would say the opposite, when they were in government, had I would I would say, a differing view. When it came to imposing austerity on local government. But there we are. I'll say no more.
And I apologies to your Lordships' House. I couldn't help myself having been very good on the previous group, I hope my response demonstrates that government has considered the points raised through this amendment carefully, and therefore would ask the noble Lord Viscount Younger of Lecce to withdraw amendment 12.
17:40
Viscount Younger of Leckie (Conservative)
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Viscount Younger of Leckie (Conservative)
Well, I'm very grateful to the noble Lords Minister and for my noble friend, Lady Altmann, for her 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 does remain responsive, transparent and accountable when the financial circumstances surrounding it change? It sounds to me very reasonable, and I have taken note of the remarks made by my noble friend, Lady Altmann, from her long experience, and it was interesting that she pointed out that the time frame of three years could easily be four years for, for, for the for the delays that are necessarily there or have to be there.
Or rather, she also made some further very powerful points. And by accepting this amendment, I would say that the government would have a greater chance of achieving its growth targets in terms of a domino effect. And I think they might like to just take that point aboard 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.
So in that context, the ability to review contribution rates where circumstances have materially changed is surely a matter of responsible governance. So this amendment is simple. It establishes a clearer framework through which contribution rates can be reviewed and when there is a good reason to do so. So for those reasons, I believe this amendment does represent a sensible, reasonable, proportionate improvement to the current framework. It reinforces the principles of transparency, accountability and responsible stewardship of public funds. So I do therefore stick to what I said at the beginning and that when my amendment is called, I will wish to test the opinion of the House.
And finally, I don't think that the noble Lord, the Minister, is correct. He says the policy should remain consistent. His words, and I really think that that shows a great lack of understanding of what many industry are actually saying, and a great inflexibility from this government. So I do wish to test the opinion of the House here.
Or rather, she also made some further very powerful points. And by accepting this amendment, I would say that the government would have a greater chance of achieving its growth targets in terms of a domino effect. And I think they might like to just take that point aboard 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.
So in that context, the ability to review contribution rates where circumstances have materially changed is surely a matter of responsible governance. So this amendment is simple. It establishes a clearer framework through which contribution rates can be reviewed and when there is a good reason to do so. So for those reasons, I believe this amendment does represent a sensible, reasonable, proportionate improvement to the current framework. It reinforces the principles of transparency, accountability and responsible stewardship of public funds. So I do therefore stick to what I said at the beginning and that when my amendment is called, I will wish to test the opinion of the House.
And finally, I don't think that the noble Lord, the Minister, is correct. He says the policy should remain consistent. His words, and I really think that that shows a great lack of understanding of what many industry are actually saying, and a great inflexibility from this government. So I do wish to test the opinion of the House here.
17:43
Deputy Lord Speaker
Lord Geddes (Conservative)
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Deputy Lord Speaker
Lord Geddes (Conservative)
The question is that amendment >> The question is that amendment 12 be agreed to, as many as are of that opinion will say content the contrary, not content, not content. contrary, not content, not content. The question will be decided by division. I will advise the House when voting is open. Voting is now
17:46
Pension Schemes Bill - report stage:Amdt 12- Division.
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Pension Schemes Bill - report stage:Amdt 12- Division.
Question Question is. The question is that amendment 12 be agreed to? As many as of that
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opinion say content. Content content content. Not content. With contents will go to the
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With contents will go to the right by the throne. The not The question is that amendment 12 be By By Lords. By Lords. There By Lords. There have voted contents 198 not contents 171. So the contents have it. Thank you.
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It's very kind of you. Thank you. It's a nice cup of tea or a nice
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It's a nice cup of tea or a nice
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drink. Just the ticket. To.
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To. My good. Includes my amendment
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opinion say content. Content content content. Not content. With contents will go to the
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With contents will go to the right by the throne. The not The question is that amendment 12 be By By Lords. By Lords. There By Lords. There have voted contents 198 not contents 171. So the contents have it. Thank you.
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It's very kind of you. Thank you. It's a nice cup of tea or a nice
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It's a nice cup of tea or a nice
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drink. Just the ticket. To.
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To. My good. Includes my amendment
17:53
Deputy Lord Speaker
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Deputy Lord Speaker
13 Baroness Altmann. >> My Lords, I rise to speak to
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My Lords, I rise to speak to amendment 13 in my name and amendment 15 as well, which is very amendment 15 as well, which is very similar. And I would also like to support the aims of amendments 14, support the aims of amendments 14, 16, 17, 18, and 19 which seek to make sure that members interests are taken into account when trustees distribute or consider distributing a surplus to employers. I beg to move this amendment because it seeks to build on the important discussions we have had at Committee stage.
And also, I'd like to thank the noble Lady, the Minister, for her thoughtful responses in that discussion, and I
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My Lords, I rise to speak to amendment 13 in my name and amendment 15 as well, which is very amendment 15 as well, which is very similar. And I would also like to support the aims of amendments 14, support the aims of amendments 14, 16, 17, 18, and 19 which seek to make sure that members interests are taken into account when trustees distribute or consider distributing a surplus to employers. I beg to move this amendment because it seeks to build on the important discussions we have had at Committee stage.
And also, I'd like to thank the noble Lady, the Minister, for her thoughtful responses in that discussion, and I
17:54
Amendment:13
Baroness Altmann (Non-affiliated)
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Amendment:13
Baroness Altmann (Non-affiliated)
do 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's on on prudent measures, the potential for positive impact is huge, given the £240 billion surplus that is estimated from those 4500 schemes. Trustees who have stewardship over these assets on behalf of around 9 million scheme members, are now being encouraged to make strategic decisions, and I think the bill is correct in encouraging that to happen, which could reshape some schemes for the future and deliver broader benefits, potentially both to members and to the economy.
Of course, trustees have significant responsibility when they are assessing a scheme's surplus and whether to pay it out to preserve it a surplus. As the noble Lord, Lord Davis of Brixton has so often reminded us, is merely a reserve rather than a surplus a buffer against future bad markets, perhaps, but in some schemes the extent of that surplus is so significant, and the employer has put in so much money over the past few years. Given the impact that quantitative easing for so long had on pension scheme liabilities, that perhaps it is appropriate for trustees to consider whether employers should be able to get some of that money back, especially if they can invest that money into their business and help grow the strength of the employer behind the scheme.
But as trustees have these greater responsibilities, what my amendment seeks to do is ensure that the relevant comparisons are being made before any surplus is actually distributed, so that the trustees have considered the options available, which the current Technical Actuarial Standard 300 would properly inform them of, which would include not just paying out a surplus, but also running the scheme on for the benefit of the members and possibly finding a new employer sponsor who could manage the scheme with a greater strength behind it, and indeed take advantage of the surplus to some degree to both enhance member benefits and retain some money or return some money to the employer.
The the noble Lord Davis may well tell us that these technical actuarial standards and the reports such as TAS3 hundred are already in place. So why do we need this amendment? Well, I am informed from significant areas in the pension industry who advise many DB schemes that although there is a requirement for these reports, trustees do not always take note of them. They're not even always presented to the trustees. And this is under the aegis of the Financial Reporting Council, which does not have sufficient resource to enforce the standards that it would perhaps otherwise wish to do so.
This amendment makes clear to trustees that they must consider the broader actuarial advice, not just asking, well, should we pay out the surplus and how much should we pay out? But also, considering the other options that would be available and many trustees will consider paying out a surplus alongside a scheme buyout, for example. Now, this actuarial report would help to inform the trustees of the potential benefits and improvements to members that can be achieved by not buying out and by running the scheme on, for example, at the moment, for each £1 billion of buyout, that buyout funding that exists in the scheme, funding that exists in the scheme, if they do buy out approximately 150 to £250 million, is then going to the insurance company in profit because they take in the money, but then they risk and invest in higher return assets.
So they make that profit. And it is entirely feasible to imagine that a scheme that carries on could itself get that extra profit by running the investment policy in a kind of low risk way, just as an insurance company would do. But that money could then go to the members or be shared between the members and the sponsor. So now that we have a position which is so different from the past, with so many schemes now in surplus, I wonder whether the government would support this idea of mandating the the scheme trustees to make sure that they have considered the actuarial advice that could so benefit members.
And we have a live example of this, where the actuarial standards, the TAS3 hundred was a crucial part of the consideration by the trustees of the Stagecoach scheme, which has managed to change the sponsoring employer from Stagecoach to Aegon, which is a big insurer who can underwrite the scheme and has promised to pay an instant increase in member benefits on taking the scheme over. And of all future surpluses to share them two thirds with members and one third going to Aegon.
So that is a real live example of the kinds of new thinking that are available in the pensions landscape nowadays, which could be so much better for the economy than schemes just looking to buy annuities, which then don't add to member benefits to employer resources or to the productive potential of the economy, which running schemes on could achieve. I hope that the noble Lady, the Minister could see that this amendment, these amendments could strengthen the bill and embed discipline where it matters most at the point of irreversible choices.
I beg to move.
Of course, trustees have significant responsibility when they are assessing a scheme's surplus and whether to pay it out to preserve it a surplus. As the noble Lord, Lord Davis of Brixton has so often reminded us, is merely a reserve rather than a surplus a buffer against future bad markets, perhaps, but in some schemes the extent of that surplus is so significant, and the employer has put in so much money over the past few years. Given the impact that quantitative easing for so long had on pension scheme liabilities, that perhaps it is appropriate for trustees to consider whether employers should be able to get some of that money back, especially if they can invest that money into their business and help grow the strength of the employer behind the scheme.
But as trustees have these greater responsibilities, what my amendment seeks to do is ensure that the relevant comparisons are being made before any surplus is actually distributed, so that the trustees have considered the options available, which the current Technical Actuarial Standard 300 would properly inform them of, which would include not just paying out a surplus, but also running the scheme on for the benefit of the members and possibly finding a new employer sponsor who could manage the scheme with a greater strength behind it, and indeed take advantage of the surplus to some degree to both enhance member benefits and retain some money or return some money to the employer.
The the noble Lord Davis may well tell us that these technical actuarial standards and the reports such as TAS3 hundred are already in place. So why do we need this amendment? Well, I am informed from significant areas in the pension industry who advise many DB schemes that although there is a requirement for these reports, trustees do not always take note of them. They're not even always presented to the trustees. And this is under the aegis of the Financial Reporting Council, which does not have sufficient resource to enforce the standards that it would perhaps otherwise wish to do so.
This amendment makes clear to trustees that they must consider the broader actuarial advice, not just asking, well, should we pay out the surplus and how much should we pay out? But also, considering the other options that would be available and many trustees will consider paying out a surplus alongside a scheme buyout, for example. Now, this actuarial report would help to inform the trustees of the potential benefits and improvements to members that can be achieved by not buying out and by running the scheme on, for example, at the moment, for each £1 billion of buyout, that buyout funding that exists in the scheme, funding that exists in the scheme, if they do buy out approximately 150 to £250 million, is then going to the insurance company in profit because they take in the money, but then they risk and invest in higher return assets.
So they make that profit. And it is entirely feasible to imagine that a scheme that carries on could itself get that extra profit by running the investment policy in a kind of low risk way, just as an insurance company would do. But that money could then go to the members or be shared between the members and the sponsor. So now that we have a position which is so different from the past, with so many schemes now in surplus, I wonder whether the government would support this idea of mandating the the scheme trustees to make sure that they have considered the actuarial advice that could so benefit members.
And we have a live example of this, where the actuarial standards, the TAS3 hundred was a crucial part of the consideration by the trustees of the Stagecoach scheme, which has managed to change the sponsoring employer from Stagecoach to Aegon, which is a big insurer who can underwrite the scheme and has promised to pay an instant increase in member benefits on taking the scheme over. And of all future surpluses to share them two thirds with members and one third going to Aegon.
So that is a real live example of the kinds of new thinking that are available in the pensions landscape nowadays, which could be so much better for the economy than schemes just looking to buy annuities, which then don't add to member benefits to employer resources or to the productive potential of the economy, which running schemes on could achieve. I hope that the noble Lady, the Minister could see that this amendment, these amendments could strengthen the bill and embed discipline where it matters most at the point of irreversible choices.
I beg to move.
18:03
Viscount Thurso (Liberal Democrat)
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Viscount Thurso (Liberal Democrat)
Amendment proposed clause nine, page ten, line 36. At end, insert page ten, line 36. At end, insert the words printed on the Marshalled List. >> My Lords, I rise to speak to my
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My Lords, I rise to speak to my amendments 14, 16, 17, and 18 in my amendments 14, 16, 17, and 18 in my name, and that of my noble friend Lord Farmer, which are in this group. And I have to say at the outset, it's always a pleasure to follow the noble Baroness, and I thank her for her support, which I'm happy to reciprocate, as it's the first time I've spoken in reports days. May I reiterate my interest as a trustee of the Parliamentary Contributory Pension Fund.
I don't think it affects this bill, affects that fund, but for clarity, I declare it. And can I also thank the Minister for the engagement she has had with me and other colleagues, particularly with me, on this subject. I came away feeling I'd had tea and sympathy, but possibly not with the greatest expectation for the future. But I do thank her for engaging with me now. We debated this at some considerable length at Committee stage, and I won't go over that just to say that the key issue in these this set of amendments is really to permit.
Where there is a surplus, that surplus to be fairly used in part to give some inflationary uplift, if that were the appropriate thing to members of that scheme. There is nothing in any of these that mandates that course of action. These are designed to permit it and also to perhaps draw attention to some of the historic, what we might call injustices. And I just say one word on surpluses. I cannot hear the word surplus in relation to pension funds without immediately putting quotation marks around it, as I said at Committee stage.
And I was grateful to the noble Lord, Lord Davis, for his suggestion that we really ought to talk about assets rather than rather than surplus. A surplus is a best guess by some intelligent professionals. The starting point is a known, which is the actual market value of the fund at a. On a given day, to which are then added a series of known unknowns in the form of what the estimated inflation rate might be, what the likely actuarial longevity of the members might be, and a variety of other things to arrive at a best estimate of what the value of the assets might be at a time in the future, and what the liabilities might be, and take one from the other, and you come up with a surplus or a deficit.
So like many who have spoken, I'm extremely cautious about the notion of surplus. And indeed, I know from the funds I've been involved in that if you are at the top of the cycle, as I suspect we're getting close to now, then a larger surplus is much needed in order to cushion you against the volatility of the shocks to come. Whereas if you're at the bottom of the cycle, you're probably very near parallel, possibly slightly in deficit, and you have to have regard to that.
There is a general principle which I will speak to more on my next amendment and later on tonight. But it is the principle that there is a contract between the employer and the employee, which is, in the case of a direct benefit pension, that they are remunerated and as part of their remuneration, there is a future remuneration, which is the pension. Now, in the case of those schemes which have in their rules full indexation and there is a large surplus, then the principle is that that surplus should, by whichever means are chosen, be returned to the employer.
But the schemes I am concerned about are schemes which are in surplus, which in their documentation made clear it was the intention at the time to update for inflation, but for whatever reason, usually prudence, the designers of the scheme did not mandate that, but allowed it a degree of flexibility so that the employer could choose or the scheme could choose not to uprate in certain whatever circumstances. In that circumstance, when a surplus arise where indexation which had been indicated, if not absolutely promised in that circumstance, part of that surplus belongs to the pensioners, and it is only fair and just.
They should have it. This set of amendments, therefore, is designed to make that possible.
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I am I've worked in Pensions
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I am I've worked in Pensions fair for far longer than I care to remember, and surpluses, so-called surpluses have been a big issue throughout. They've come and gone. throughout. They've come and gone. Sometimes they've been negative
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My Lords, I rise to speak to my amendments 14, 16, 17, and 18 in my amendments 14, 16, 17, and 18 in my name, and that of my noble friend Lord Farmer, which are in this group. And I have to say at the outset, it's always a pleasure to follow the noble Baroness, and I thank her for her support, which I'm happy to reciprocate, as it's the first time I've spoken in reports days. May I reiterate my interest as a trustee of the Parliamentary Contributory Pension Fund.
I don't think it affects this bill, affects that fund, but for clarity, I declare it. And can I also thank the Minister for the engagement she has had with me and other colleagues, particularly with me, on this subject. I came away feeling I'd had tea and sympathy, but possibly not with the greatest expectation for the future. But I do thank her for engaging with me now. We debated this at some considerable length at Committee stage, and I won't go over that just to say that the key issue in these this set of amendments is really to permit.
Where there is a surplus, that surplus to be fairly used in part to give some inflationary uplift, if that were the appropriate thing to members of that scheme. There is nothing in any of these that mandates that course of action. These are designed to permit it and also to perhaps draw attention to some of the historic, what we might call injustices. And I just say one word on surpluses. I cannot hear the word surplus in relation to pension funds without immediately putting quotation marks around it, as I said at Committee stage.
And I was grateful to the noble Lord, Lord Davis, for his suggestion that we really ought to talk about assets rather than rather than surplus. A surplus is a best guess by some intelligent professionals. The starting point is a known, which is the actual market value of the fund at a. On a given day, to which are then added a series of known unknowns in the form of what the estimated inflation rate might be, what the likely actuarial longevity of the members might be, and a variety of other things to arrive at a best estimate of what the value of the assets might be at a time in the future, and what the liabilities might be, and take one from the other, and you come up with a surplus or a deficit.
So like many who have spoken, I'm extremely cautious about the notion of surplus. And indeed, I know from the funds I've been involved in that if you are at the top of the cycle, as I suspect we're getting close to now, then a larger surplus is much needed in order to cushion you against the volatility of the shocks to come. Whereas if you're at the bottom of the cycle, you're probably very near parallel, possibly slightly in deficit, and you have to have regard to that.
There is a general principle which I will speak to more on my next amendment and later on tonight. But it is the principle that there is a contract between the employer and the employee, which is, in the case of a direct benefit pension, that they are remunerated and as part of their remuneration, there is a future remuneration, which is the pension. Now, in the case of those schemes which have in their rules full indexation and there is a large surplus, then the principle is that that surplus should, by whichever means are chosen, be returned to the employer.
But the schemes I am concerned about are schemes which are in surplus, which in their documentation made clear it was the intention at the time to update for inflation, but for whatever reason, usually prudence, the designers of the scheme did not mandate that, but allowed it a degree of flexibility so that the employer could choose or the scheme could choose not to uprate in certain whatever circumstances. In that circumstance, when a surplus arise where indexation which had been indicated, if not absolutely promised in that circumstance, part of that surplus belongs to the pensioners, and it is only fair and just.
They should have it. This set of amendments, therefore, is designed to make that possible.
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I am I've worked in Pensions
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I am I've worked in Pensions fair for far longer than I care to remember, and surpluses, so-called surpluses have been a big issue throughout. They've come and gone. throughout. They've come and gone. Sometimes they've been negative
18:09
Lord Davies of Brixton (Labour)
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Lord Davies of Brixton (Labour)
Sometimes they've been negative services deficits, but they still are central to the health or otherwise of a pension scheme. And it's totally embedded in my working life. And so I hope the House will forgive me if I choose to make a a longer contribution on this issue. The amendments in this group, I support all of them. The noble Lady Baroness suggested I might not like her amendments, and maybe I think they're a bit unnecessary in principle, but in practice, I think the idea that trustees should consider all these issues when they make a decision about releasing surplus to the employer, I think that's a good.
So I support 30 and 15. I also support the amendments in the name of the noble Viscount 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 only do so when it's in the interests of members, and this legislation removes that guarantee. Now, we debated this in committee, and we've heard the government's argument on the issue, which is essentially we can leave it to the trustees to look after it well.
My experience is that it's not a safe basis to rely upon. Some trustees are fine. They do a great job. Other trustees. Don't. Consider their role to help the members. They see their role as being very restrictive. And so to not have something in the bill about members, I think is a massive disadvantage. Now, Ministers, in introducing this legislation, have said extensively that members are going to benefit from the release of surpluses.
Any. Bystander not deeply engaged in the issue, listening to what Ministers have said would come to the conclusion that members are going to benefit. Indeed, I've just in committee I quoted about half a dozen different ways in which the different Ministers have given that impression. But I'll just quote for the purposes of this debate, the Minister for pensions, I my right hon. Friend Torsten Bell, he argued consistently and rightly about the release of assets.
About not just being for employers, but being for members as well. And if you look at the government's roadmap for pensions to which he put his name, it states under the heading Surplus Flexibilities, we will allow well funded pension schemes to safely release some of the 160 billion surplus funds to be reinvested across the UK economy and to improve outcome for members. So the government's case is this change in the legislation is required to benefit members, and yet there's nothing in the bill at all about benefits for members.
And this has been highlighted in the in the amendment from. From noble Lord Viscount Thurso. So I think it is a big gap in the bill, and one that does need to be rectified. Turning then to my amendment 19, which goes together with amendment 16, an overlord Viscount Thurso. He. His amendment adds the word consulted, saying that members should not only be notified of the trustees intention to release surplus to the employer, they should be consulted employer, they should be consulted about that decision.
Consultation is obviously a good thing. What the the structure for trustees to consult with scheme members isn't, to my mind, strong enough to provide a helpful way forward. The better way forward is the one suggested in my amendment and. Because there's already provision for employers to consult with members about changes in occupational pension schemes, it's already there. In the legislation, there are a list of changes to pension schemes or actions in relation to a pension scheme where the employer, if the employer is involved, the employer has to consult with the independent recognised trade unions.
I'm very much a trade unionist here, and the point of trade unions is to provide a viable means of consultation, and it applies here. I'm 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 should must consult with the recognised trade unions and that includes things like increasing the retirement age. It includes changing the accrual rate, but it also includes ending or reducing the employer's liability to make contributions.
I think the decision by the trustees to make a payment to the employer is a decision by the employer. The employer has obviously got to make a decision. They've got to decide to receive that money. And I believe strongly that the employer, before accepting that money from the pension scheme, a good employer would in any event, consult with the recognised trade unions. And so what my amendment does is to add that decision by an employer to the list of issues upon which they have to be they have to consult the trade unions.
It's straightforward. It's not suggesting anything new. That provision is already there. It's just extending the list of issues upon which consultations had to take place to include this new development. Just to conclude, much of the detail of how this is going to be implemented depends on regulations. So I have two questions by for my noble friend, the Minister, first, will regulations under section ten have to. It's quite difficult to interpret the act. The bill. But will.
Regulations under section ten be made under the affirmative procedure and hence come before this House and the Commons. And secondly, will there be consultation on those regulations and when will that consultation take place? Because to be honest, much of what we're asking for in these amendments to the bill could actually be included in regulations, and I will certainly be spending my time over the coming months and years to make sure that the regulations reflect the fact that the government's approach has a commitment in my mind to ensure that members benefit from the release of services as much as employers.
So I support 30 and 15. I also support the amendments in the name of the noble Viscount 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 only do so when it's in the interests of members, and this legislation removes that guarantee. Now, we debated this in committee, and we've heard the government's argument on the issue, which is essentially we can leave it to the trustees to look after it well.
My experience is that it's not a safe basis to rely upon. Some trustees are fine. They do a great job. Other trustees. Don't. Consider their role to help the members. They see their role as being very restrictive. And so to not have something in the bill about members, I think is a massive disadvantage. Now, Ministers, in introducing this legislation, have said extensively that members are going to benefit from the release of surpluses.
Any. Bystander not deeply engaged in the issue, listening to what Ministers have said would come to the conclusion that members are going to benefit. Indeed, I've just in committee I quoted about half a dozen different ways in which the different Ministers have given that impression. But I'll just quote for the purposes of this debate, the Minister for pensions, I my right hon. Friend Torsten Bell, he argued consistently and rightly about the release of assets.
About not just being for employers, but being for members as well. And if you look at the government's roadmap for pensions to which he put his name, it states under the heading Surplus Flexibilities, we will allow well funded pension schemes to safely release some of the 160 billion surplus funds to be reinvested across the UK economy and to improve outcome for members. So the government's case is this change in the legislation is required to benefit members, and yet there's nothing in the bill at all about benefits for members.
And this has been highlighted in the in the amendment from. From noble Lord Viscount Thurso. So I think it is a big gap in the bill, and one that does need to be rectified. Turning then to my amendment 19, which goes together with amendment 16, an overlord Viscount Thurso. He. His amendment adds the word consulted, saying that members should not only be notified of the trustees intention to release surplus to the employer, they should be consulted employer, they should be consulted about that decision.
Consultation is obviously a good thing. What the the structure for trustees to consult with scheme members isn't, to my mind, strong enough to provide a helpful way forward. The better way forward is the one suggested in my amendment and. Because there's already provision for employers to consult with members about changes in occupational pension schemes, it's already there. In the legislation, there are a list of changes to pension schemes or actions in relation to a pension scheme where the employer, if the employer is involved, the employer has to consult with the independent recognised trade unions.
I'm very much a trade unionist here, and the point of trade unions is to provide a viable means of consultation, and it applies here. I'm 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 should must consult with the recognised trade unions and that includes things like increasing the retirement age. It includes changing the accrual rate, but it also includes ending or reducing the employer's liability to make contributions.
I think the decision by the trustees to make a payment to the employer is a decision by the employer. The employer has obviously got to make a decision. They've got to decide to receive that money. And I believe strongly that the employer, before accepting that money from the pension scheme, a good employer would in any event, consult with the recognised trade unions. And so what my amendment does is to add that decision by an employer to the list of issues upon which they have to be they have to consult the trade unions.
It's straightforward. It's not suggesting anything new. That provision is already there. It's just extending the list of issues upon which consultations had to take place to include this new development. Just to conclude, much of the detail of how this is going to be implemented depends on regulations. So I have two questions by for my noble friend, the Minister, first, will regulations under section ten have to. It's quite difficult to interpret the act. The bill. But will.
Regulations under section ten be made under the affirmative procedure and hence come before this House and the Commons. And secondly, will there be consultation on those regulations and when will that consultation take place? Because to be honest, much of what we're asking for in these amendments to the bill could actually be included in regulations, and I will certainly be spending my time over the coming months and years to make sure that the regulations reflect the fact that the government's approach has a commitment in my mind to ensure that members benefit from the release of services as much as employers.
18:18
Baroness Stedman-Scott (Conservative)
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Baroness Stedman-Scott (Conservative)
My Lords, I will speak briefly to some of the amendments in this group. At the outset. I thank all noble Lords have tabled amendments and contributed to the constructive discussions that we have been able to have on these issues. While I will focus my remarks on a number of the amendments before us, 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 scheme 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. Turning first to amendment 13 in the name of the noble Baroness, Lady Altmann, it introduces 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 the scheme funding before rule changes are made, and secondly, it requires them to consider alternative approaches to dealing with surplus that may benefit members instead, such as running the scheme on transferring to a super fund or securing benefits for annuities.
In other words, it ensures that sound professional advice is formally incorporated into the process before it can be completed. That process is then complemented by amendment 15, which addresses the next stage of the decision. While amendment 13 concerns the creation of the power, Amendment 15 ensures that advice is taken when trustees actually decide whether to exercise that power and pay surpluses to the employer. Under this amendment, trustees would be required to obtain actuarial advice and to consider the risks and benefits of alternative approaches before distributing surplus.
They would therefore need to evaluate options such as reducing or pausing contributions. Running the scheme on transferring to a super fund or buying out liabilities, ensuring that these risks and alternatives are considered in sufficient depth is critically important. It helps to make sure that trustees fiduciary duties remain at the centre of the process, and that decisions about surplus are taken in careful, balanced and professional informed way. Amendment 17 would retain the existing requirement that trustees must be satisfied that the exercise of the power to pay surplus is in the interest of scheme members, as noble Lords will know, that protection currently exists in the Pensions Act 1995, but the bill, as drafted would remove it.
Retaining that test would represent a major government safeguard. It ensures that trustees continue to place members interests at the heart of their decision making, when considering whether surplus should be returned to the employer. That seems to us both sensible and entirely legitimate. The government should give serious consideration to adopting this change, because members interest should always remain central to the operation of pension schemes. My Lords, the reforms proposed in the Bill potentially open a pathway for surplus to be released from defined benefit schemes.
If that pathway is to command confidence, it must be underpinned by strong governance, professional advice and meaningful member engagement. The amendments in this group help to reinforce these principles. We welcome the opportunity we've had to debate and discuss these important issues.
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. Turning first to amendment 13 in the name of the noble Baroness, Lady Altmann, it introduces 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 the scheme funding before rule changes are made, and secondly, it requires them to consider alternative approaches to dealing with surplus that may benefit members instead, such as running the scheme on transferring to a super fund or securing benefits for annuities.
In other words, it ensures that sound professional advice is formally incorporated into the process before it can be completed. That process is then complemented by amendment 15, which addresses the next stage of the decision. While amendment 13 concerns the creation of the power, Amendment 15 ensures that advice is taken when trustees actually decide whether to exercise that power and pay surpluses to the employer. Under this amendment, trustees would be required to obtain actuarial advice and to consider the risks and benefits of alternative approaches before distributing surplus.
They would therefore need to evaluate options such as reducing or pausing contributions. Running the scheme on transferring to a super fund or buying out liabilities, ensuring that these risks and alternatives are considered in sufficient depth is critically important. It helps to make sure that trustees fiduciary duties remain at the centre of the process, and that decisions about surplus are taken in careful, balanced and professional informed way. Amendment 17 would retain the existing requirement that trustees must be satisfied that the exercise of the power to pay surplus is in the interest of scheme members, as noble Lords will know, that protection currently exists in the Pensions Act 1995, but the bill, as drafted would remove it.
Retaining that test would represent a major government safeguard. It ensures that trustees continue to place members interests at the heart of their decision making, when considering whether surplus should be returned to the employer. That seems to us both sensible and entirely legitimate. The government should give serious consideration to adopting this change, because members interest should always remain central to the operation of pension schemes. My Lords, the reforms proposed in the Bill potentially open a pathway for surplus to be released from defined benefit schemes.
If that pathway is to command confidence, it must be underpinned by strong governance, professional advice and meaningful member engagement. The amendments in this group help to reinforce these principles. We welcome the opportunity we've had to debate and discuss these important issues.
18:23
Baroness Sherlock, The Minister of State, Department for Work and Pensions (Labour)
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Baroness Sherlock, The Minister of State, Department for Work and Pensions (Labour)
My Lords, I'm grateful to the noble Baroness, Lady Altmann and my noble friend Lord Davis, and the noble Viscount Viscount 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, of course, 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 every member's pension can be paid.
As I've 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, and trustees, crucially, must receive actuarial certification that the scheme meets a prudent funding threshold and members must be notified before surplus is released. Let's not forget what these changes are doing is 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. It is precisely why the decision to release surplus remains in the hands of trustees, who are there to represent their members. Trustees will consider a range of scheme specific circumstances, including the employer covenant and wider end game planning when discharging their duty to members. It is, however, my Lords entirely for trustees to decide whether they may seek broader views before taking a decision to release surplus, and it is their decision that not that of the employer, a legislative requirement to consult is not, in our view, proportionate.
The existing framework gives trustees scope to seek broader views as required, and the fact remains, ultimately, trustees must act in the best interests of scheme beneficiaries when taking a decision to release surplus. Furthermore, under our changes, trustees will continue to be subject to a requirement to notify members in advance of any surplus release. Maintaining this key protection for scheme members. And I can assure my noble friend, Lord Davis, that we will be monitoring closely how schemes intend to and are using these powers.
Amendment 17 seeks to retain the statutory requirement. The trustees be satisfied that it is in the interests of members before agreeing to surplus release, and we do discuss this at some detail at committee. But my Lords trustees already have a clear, overarching duty to act in the interests of scheme beneficiaries. We have had clear feedback from industry wide stakeholders, including trustees, who have welcomed the repeal of this statutory requirement. Existing legislation is perceived as a barrier by trustees to considering the release of surplus, because they are not sure how this additional test is reconciled with their existing overarching duties.
This could clearly lead to indecision on whether to release surplus, which may ultimately lead to members losing out when making this change. To put it beyond doubt for trustees, they are not subject
As I've 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, and trustees, crucially, must receive actuarial certification that the scheme meets a prudent funding threshold and members must be notified before surplus is released. Let's not forget what these changes are doing is 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. It is precisely why the decision to release surplus remains in the hands of trustees, who are there to represent their members. Trustees will consider a range of scheme specific circumstances, including the employer covenant and wider end game planning when discharging their duty to members. It is, however, my Lords entirely for trustees to decide whether they may seek broader views before taking a decision to release surplus, and it is their decision that not that of the employer, a legislative requirement to consult is not, in our view, proportionate.
The existing framework gives trustees scope to seek broader views as required, and the fact remains, ultimately, trustees must act in the best interests of scheme beneficiaries when taking a decision to release surplus. Furthermore, under our changes, trustees will continue to be subject to a requirement to notify members in advance of any surplus release. Maintaining this key protection for scheme members. And I can assure my noble friend, Lord Davis, that we will be monitoring closely how schemes intend to and are using these powers.
Amendment 17 seeks to retain the statutory requirement. The trustees be satisfied that it is in the interests of members before agreeing to surplus release, and we do discuss this at some detail at committee. But my Lords trustees already have a clear, overarching duty to act in the interests of scheme beneficiaries. We have had clear feedback from industry wide stakeholders, including trustees, who have welcomed the repeal of this statutory requirement. Existing legislation is perceived as a barrier by trustees to considering the release of surplus, because they are not sure how this additional test is reconciled with their existing overarching duties.
This could clearly lead to indecision on whether to release surplus, which may ultimately lead to members losing out when making this change. To put it beyond doubt for trustees, they are not subject