Pension Schemes Bill

Baroness Stedman-Scott Excerpts

Committee stage
Monday 12th January 2026 Grand Committee

[Viscount Thurso (LD)]

My Lords, I will briefly give my support to the noble Lord, Lord Davies. I believe that many schemes would absolutely like to put money into social housing. The scheme of which I am a trustee, and which I mentioned earlier, has recently put 5% into social housing—it is entitled to do that, and it did so based on an investment case. It has put a further 5% into social infrastructure—it has also done that based on an investment case; it is part of the protection assets within the fund. We are allowed to do that, so can the Minister therefore say whether anything in the Bill prevents the funds that we are discussing from doing exactly the same thing?

[Baroness Stedman-Scott (Con)]

My Lords, we come to another group of largely probing amendments, which I welcome. A good deal of the process on the Bill will be about unpacking what the Government intend, how these provisions will work in practice and what the industry can anticipate. Certainly, those are the questions that have been raised with me in my engagement with representatives.

I will speak briefly to the amendments in the names of other noble Lords, many of which are clearly probing in nature and raise important and legitimate questions about how Local Government Pension Scheme assets might be deployed to support wider economic and social objectives. We welcome that debate. It is right that Parliament explores how long-term patient capital can help support UK growth, infrastructure and social outcomes. I recognise the spirit in which these amendments have been brought forward.

However, from our side, we believe that it is important to be clear about a central principle: LGPS funds are, first and foremost, fiduciary vehicles. Scheme managers have a legal duty to act in the best financial interests of members and beneficiaries, and that duty must remain paramount. However, I note that the Local Government Pension Scheme’s advisory board has already warned that:

“New government regulations could ‘directly usurp’ the most fundamental duty of council pension funds”.


Could the Minister address that in his response?

Opportunities for investments in areas such as UK growth assets or social housing should therefore be presented, structured and made investable in a way that meets risk-adjusted return requirements and not mandated or directed through statute. There is a clear difference between creating a strong pipeline of investable opportunities and compelling capital allocation. Once we move from encouragement to prescription, we risk undermining trustee independence.

Many of the amendments in this group helpfully test where that boundary should sit, and I hope that the Minister can reassure the Committee that the Government’s approach is to enable, not to direct, in order to attract pension investment through quality and value, not through compulsion. If we keep fiduciary duty at the centre and focus on making UK opportunities genuinely competitive investments, growth and good pensions will go hand in hand. That is the balance that we are keen to see maintained.

I shall speak to my two amendments in this group, Amendments 9 and 11, which are intended to improve clarity, accountability and future-proofing in Clause 2, rather than to change the underlying investment powers of the scheme managers.

Amendment 9 would require scheme managers to publish an annual report on the local investments held within their asset pool companies, including both the extent of those investments and their financial performance. If local investment is to play an increasing role within LGPS portfolios, transparency is essential. Members, employers and taxpayers are entitled to understand not only where capital is being deployed but how it is performing. This amendment would not mandate local investment; nor would it direct decision-making. It simply asks that where such investments are made, they are visible, measurable and open to scrutiny. The question it poses to the Government is straightforward: is transparency, rather than compulsion, the right way to build confidence in local investment? We believe that it is.

I add at this point that a great many Bills are coming before your Lordships’ House in which the interaction with post-devolution structures is far from clear. The Government should be making more of an effort to provide clarity on the post-devolution picture when drafting legislation. I therefore ask the Minister—here come the exam questions—how do the Government intend to keep the definition of strategic authorities under review as devolution evolves? What assurances can be given that future legislation will align properly with the new devolved arrangements? Do the Government accept that there is a risk of confusion and overlap if these definitions are not regularly updated to reflect constitutional changes? More broadly, what steps are the Government taking to ensure a coherent and consistent approach to the interaction between the new powers and devolution settlements? Crucially, how will assets and liabilities be carved up post devolution, and can the Minister assure us that this will be done independently? I am very happy for the Minister to write, rather than bombarding him with a massive amount of work now—although maybe we should; I do not know.

Amendment 11 is probing in nature and concerns the definition of strategic authorities. Currently, the Bill hard-codes a specific list of bodies in primary legislation, yet the architecture of English devolution is changing rapidly, not least through the forthcoming English devolution Bill. This amendment therefore asks whether that definition is sufficiently agile and future-proofed or whether it risks becoming outdated almost as soon as it is enacted. It invites the Minister to explain how the Government intend to ensure that LGPS governance can adapt to evolving local and regional structures without requiring repeated primary legislation.

Taken together, these amendments seek to strengthen Clause 2 by reinforcing accountability on the one hand and flexibility on the other, while preserving the core principle that investment decisions must remain firmly rooted in fiduciary duty. I look forward to the Minister’s response to the questions the amendments raise and his reassurance that the Government’s approach is to enable good investment decisions through transparency and clarity rather than prescription.

[Lord Katz (Lab)]

My Lords, I am grateful to noble Lords for these amendments and for the probing and helpful debate that we have had on this group.

I turn first to Amendment 7 in the name of my noble friend Lord Davies of Brixton, which explores how LGPS assets might be used to provide social housing. The Government aim to ensure that LGPS investments support the prosperity and well-being of their local communities, just as members did throughout their working lives—an aim that is certainly reflected in my noble friend’s amendment. However, the Government do not wish to direct asset pools as to the manner of their investments—to be fair to my noble friend, he said that this was not about mandation. To respect the independence of LGPS funds, it remains the responsibility of administering authorities to set their investment strategy.

The reforms will require administering authorities to co-operate with strategic authorities to identify and develop appropriate investment opportunities, which may include social housing-related investments. While social housing is a high priority for local areas and may provide suitable opportunities for investment, it should be for strategic authorities to consider and set priorities appropriate for their areas.

My noble friend asked whether the revised regulations might act as a barrier to investing in social housing. We would say that that is not the case; there will not be a barrier. Administering authorities will continue to set the investment strategy for their fund, including local investment priorities. They must have regard to local growth priorities in setting their investment strategy and can recommend opportunities to their pool. Local investments are not restricted to any asset classes. The Government see housing as one of as the investment sectors with the greatest potential for local government impact.

My noble friend Lady Warwick of Undercliffe spoke cogently and with some passion on the importance of increasing social housing. That is something the Government would align with. She asked whether we were confident that, without reference to social housing in the Bill, the LGPS will invest in it. I say to her—to be fair there was some acknowledgement of this in her comments and in those of my noble friend Lord Davies—that there is a long history of local investment by the LGPS. Cornwall Pension Fund, for example, has committed more than £100 million to a local impact fund with a focus on solar farms and affordable housing. Greater Manchester Pension Fund has backed major housing and regeneration projects in the north-west, to which it commits 5% of its total assets. The LPP pool is a major investor in the Haweswater Aqueduct Resilience Programme. The London and LPP pools have established the £250 million London fund, to which my noble friend Lord Davies referred. It invests in opportunities in London, including in residential property and affordable housing, as well as community regeneration, digital infrastructure and clean energy.

My noble friend Lady Warwick asked whether the Government would ensure that all LGPS have the right tools to provide the best returns for members. The Government’s expectation is that the reforms will deliver the wider benefits of professionalised asset management, including long-term savings and efficiency. We are also aiming to strengthen LGPS fund governance. Better governance ensures decisions are more effective, with decision-makers able to be agile, better at managing risk and able to pick up opportunities.

Amendment 11 was mentioned by a number of noble Lords and was tabled by the noble Baroness, Lady Stedman-Scott. I agree that the definition of strategic authority should be consistent across all relevant legislation. This Bill and the draft regulations that the Government have prepared will ensure that the authorities that are treated as strategic authorities in England for the purpose of the English Devolution and Community Empowerment Bill are treated as such for the purpose of LGPS investments. If any new authorities become strategic authorities, the Government will use the regulation-making powers to ensure that their treatment remains the same. I hope that addresses some of the concerns raised by the noble Baroness, Lady Stedman-Scott. She talked about her concerns about potential confusion over a changing and emerging landscape. I am happy to write to her with more details, as she was so kind in setting so few exam questions compared with her Front Bench colleague on my earlier group. Her restraint is commendable.

Regarding Amendment 12, I understand the noble Lord’s intention is to encourage greater domestic investment across the whole of the UK and, indeed, growth is the number on mission of this Government. The LGPS already invests approximately 30% of its assets in the UK. Greater consolidation will build on this success story as the pools will have greater capacity and expertise to invest domestically, including in infrastructure and unlisted assets.

The noble Lord, Lord Fuller, asked about the duty to co-operate and whether it would make it difficult for schemes to invest outside their locality. I reassure him that the proposals do not prevent investment outside the area of the funds or the pool. Administering authorities are free to set whatever local investment target they consider appropriate. While investment across the UK is strongly encouraged, the purpose of this requirement is to promote investment that has tangible benefits to the fund or its pool. Expanding the definition to the whole of the UK would go too far and local benefits would be diluted.

--- Later in debate ---

[Lord Palmer of Childs Hill (LD)]

I have always reckoned that the duty of pension fund managers is to the members. What we are trying to do now is say that they have other duties; however, it is not very clear where the borderline is.

[Baroness Stedman-Scott (Con)]

I know how frustrating it is when Members keep getting up to ask questions, but I have to do this. The Minister referred to a backstop. For what purpose? In what circumstances would it be used? Can the Minister help us understand that?

[Lord Katz (Lab)]

The backstop power relates to our earlier discussion on previous amendments. It would be used in extremis. The problem is that the noble Baroness is asking me to conject on what are hypothetical situations. Some of these issues will be set out in some of the regulations that will follow.

I am happy to go back a couple of interventions and pick up the point made by the noble Baroness, Lady Altmann. I would be happy to write to try to clarify the distinction that we are making. Of course we want to see good levels of investment in a range of different asset classes, but we are absolutely not saying that this is a slippery slope to taking powers of direction or mandation. We are very clear on that. Ultimately, this is the nature of pensions legislation: some of the clarity comes down stream. We are clear that the Government’s intention in the Bill is purely to provide the framework to ensure that we can harness the potential of these asset pools to make some meaningful investments.

[Baroness Stedman-Scott (Con)]

This is in the Bill. I know that the Minister cannot do this now—I accept that he can write to me—but can he please help us? If it is in the Bill, we need to know what it means before regulations come.

[Lord Katz (Lab)]

I am not sure whether I can provide much more clarity than I have done so far, so I would be very happy to write to the noble Baroness to spell that out.

I realise that I have not given the levels of satisfaction and clarity that Members perhaps wanted but, as these are probing amendments, we contend that they would have a minimal impact. On that basis, I ask the noble Baroness to withdraw her amendment.