Pension Schemes Bill

Lord Davies of Brixton Excerpts

Committee stage
Wednesday 14th January 2026 Grand Committee

This cannot be viewed in isolation from the Government’s wider approach to local government reform. Rising pension costs, constrained local finances and an already uncertain and poorly executed programme of local government reorganisation only compound the risk. That is why these amendments matter. They do not seek to undermine local government pension schemes or dictate outcomes. They seek clarity of purpose, consistency of interpretation and accountability for decisions that carry significant financial consequences. If we are serious about long-term affordability and giving local government the stability it needs to plan and invest, we must begin by ensuring that the regulatory framework governing contributions is clear, proportionate and aligned with its founding intent. I look forward to the Minister’s response.

[Lord Davies of Brixton (Lab)]

The noble Baroness cited a particular case and gave considerable detail about the circumstances. Is there any reason why the Committee cannot be told which authority it concerns? As things stand, there is no way that I or any other Member of the Committee could comment on that case. If the noble Baroness can tell us which authority it is, in the interest of transparency, I urge her to do so.

[Baroness Stedman-Scott (Con)]

I have always been a supporter of transparency. I do not know the answer to the noble Lord’s question, but I will find out and let him know either the name of the council or the reason why I cannot give it to him. We have other examples that we are happy to share. I hope that answers the noble Lord’s question. I beg to move.

[Lord Davies of Brixton (Lab)]

It is a pleasure to take part in this debate. It is an important issue and public money should always be open to scrutiny and deep thought about how we approach these issues. The noble Baroness, in introducing the amendments, quoted the significant switch round in the financial state of the Local Government Pension Scheme. She will be able to have an interesting discussion with her former colleagues, Liz Truss and Kwasi Kwarteng, as to why exactly that has happened. They have had more influence on it probably than the actuarial profession.

My message essentially is, “If it ain’t broke, don’t fix it”. What we have here is the Official Opposition attempting to make a crisis out of a significant success. The Local Government Pension Scheme has been successful, as attested to by the noble Lord, Lord Fuller, yet here we are being presented with it as if there is some crisis to address. We should recognise that, in actuarial terms, the financial management of the scheme has been a significant success. It is up to those suggesting reviews—two in this group of amendments and two more in the following group, which should more accurately be here—to explain, rather than providing anonymous details, what the problem is.

The context is that, compared to private sector funded schemes, where contributions have been increasing, what we are going to see in the coming year is the opportunity of significant cost reductions. This is for two reasons. First, it is because of the successes of Local Government Pension Scheme investments, with returns of around 9% per annum since the last valuations. As a result, that has generated significant surpluses—significant excess of assets over liabilities. I shall come back to that in a later group. Following the latest set of triennial valuations, substantial reductions will be available. It is up to individual authorities to make their decisions, but the opportunity will be there, certainly for most funds.

As far as actuaries who support and work within the local government sector are concerned, as I explained on Monday, this discussion comes as a bolt from the blue. What we really need in this area is stability. It would be far better to promote discussion first within the sector, with those who know what they are talking about, before producing these proposals, which inevitably lead to uncertainty.

It is not a surprise, given the environment we are in, that there has been no consultation on this, unlike the investment changes, because it is part of a programme that we see with amendments submitted later in this Bill. There are some people who just do not like successful collective pension provision. There is an agenda at work here. As I say, I do not oppose consideration of the issues, but we should understand where it is coming from.

It is important to understand that the last valuations were in 2022. The current valuations, as at 31 March last year, are under way and we do not yet have the full results. Early results have been provided and we know the direction of travel, but we do not know the final results, which is why I question the figures being quoted. We do not yet know the results over the sector as a whole of the current series of valuations. Any speculation about that outcome misses the point.

The second point I want to make is that there is no one-size-fits-all solution to the funding of local government pension schemes. They vary widely in their size. The staff membership has to be taken into account, and that varies, and you also have to understand that some of these funds have significant numbers of non-local government members through the admitted body process and each of those has to be assessed in a proper way. There is no way you can have a one-size-fits-all approach to the actuarial management of these funds. You need the professional knowledge and judgment of actuaries—you may think I am promoting my own profession—to decide what is the best approach.

Clearly, that judgment should be open to review and, of course, it has been reviewed. That is what is so nonsensical about these proposals. Under Section 13 of the Public Service Pensions Act 2013, the Government can ask for reviews of the funded public service schemes, which effectively means local government schemes. Indeed, such a review has been carried out and a full detailed report produced by the Government Actuary, setting out the approach that has been adopted, comparing the different approaches—there are four firms of actuaries, which all have slightly different approaches—reconciling them and judging the assumptions that have been made.

Broadly speaking, the Government Actuary has given these valuations a clean bill of health. Therefore, any suggestion that there is anything wrong about the actuarial approach that is being taken is denied by the Government’s own actuarial adviser. Funds need to take account of local needs and public interest has a role in deciding how services can be employed in these funds. There is no question of refund in these funds, but the way in which it affects contributions is crucial.

Another point, which I think the noble Baroness ignored, is that these funds are all subject to the cost- capping arrangements set out in the coalition Government’s review of public service pensions of 14 or 15 years ago. There is a cost cap. I made a note of what the noble Baroness said: that the full cost of the contributions “bears on the employers”. That is just wrong. It bears on the employers and the members together. It is the employers’ costs that are capped under legislation and it is the members who bear the risk of increasing costs and stand to enjoy the benefit of reducing costs. The cost cap is crucial in these schemes and to ignore its important role fails to understand what we are doing. I am sorry—I could go on, but I think the situation is clear.

There was just one other point—I will go on. It arises under the next group and it is the idea of a statutory funding standard. Of course, we tried that with private sector pension schemes and it was a disaster. Everyone agreed it was a disaster and we had to have a new system—whether the new system was any better is a matter for debate. However, the idea of having a statutory funding standard just did not work.

To conclude—I hope it is a conclusion this time—there is no evidence that the existing system has failed. Indeed, we expect to see the benefits of the current approach when we decide what these funds should be in the light of the forthcoming valuation results.

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[Lord Davies of Brixton (Lab)]

There is a phrase, “esprit d’escalier”—is that how you say it?—for when you are walking down the stairs and you suddenly think of the thing you wish you had said in a previous discussion. Well, this group of amendments provides an ideal opportunity to avoid that very problem.

I do not want to delay the Grand Committee unnecessarily but I feel forced to say something. In essence, these amendments are fundamentally misconceived. I do not object to these questions being asked, but have the two previous speakers ever looked at a Local Government Pension Scheme valuation report? All the information for which they are asking and more is set out in those reports, in accordance with the professional standard that all actuaries must meet.

It is worth saying that that professional standard is set not by actuaries but by the Financial Reporting Council, which sets technical standards for the actuarial profession. The profession looks after professional standards but technical standards, and specifically what should appear in a valuation report, are set by the Financial Reporting Council, which is not part of the actuarial profession. Obviously, there is big actuarial input, but the final decision is made by the council, and all the information called for by the noble Viscount and the noble Baroness is in those reports. Of course, there may be cases where it does not appear in those reports, in which case that is a case of technical malpractice and the Financial Reporting Council should be told.

[Baroness Altmann (Non-Afl)]

I apologise for intervening, but I feel that there is a bit of misdescription here. Yes, it is true that Regulation 64, for example, includes this information, but the FRC does not have the authority to insist on these issues being fed through. Indeed, there is non-statutory guidance that seems to override all this. For example, it says that you should not consider changes in contribution rates on the basis of liabilities that have changed due to market changes, so the interest rate environment, which has changed so fundamentally, is supposed not to feed through to the conclusions on contribution rates. That is part of this mindset which, I feel, it is so important for us to try to adjust as we go forward, given the fundamental changes that have happened.

[Lord Davies of Brixton (Lab)]

I apologise, but I do not understand what the noble Baroness is saying. Actuaries have to comply with these professional standards; any valuation report they produce has to meet them—that is not a question for debate. If a report does not meet those standards, it should be pursued on its merits. To claim that this information is not available is simply untrue: it is there in the valuation reports. I always have problems with the word “transparency”, because to me it looks like something you can see through and you cannot see it, but I take it to mean that a full explanation of the degree of prudence, a wide evaluation of the assumptions chosen, what effect different assumptions would have and the outcome in terms of the contribution rate all have to be set out. They are publicly available.

The second point is that actuaries do not decide on the valuation assumptions; the management committee decides, on actuarial advice, what the assumptions should be. The local, democratically elected representatives take the decisions, including about what the contribution rate should be. We are currently in an odd state where lots of information on the situation is becoming available, but that is because we are at the end of a three-year cycle of valuations. By the end of this year, all these issues will have been resolved. Not everyone will be pleased; it is entirely possible that some admitted bodies will find that their contributions go up. Perhaps they had significant changes in their workforce—who knows? But the mere fact that some contribution rates go up while the overall move is a reduction does not in itself mean that the system is broken.

I find it difficult to understand what exactly these amendments intend to achieve. The information is available, the decisions are made by the local government bodies involved, and they take the decisions based on their democratic responsibility. What more could we want?

[Baroness Altmann (Non-Afl)]

Perhaps I could assist the Committee. These amendments are asking for a publicly available report that clarifies and sets out all this information on a basis that council tax payers, for example, whose money is being used, can see with clarity: it is provided to them. With all due respect, they will not read the actuarial report, but having a properly set-out review that explains all this clearly, in language that people can understand, would have huge value.

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[Baroness Noakes (Con)]

I shall just comment on Amendment 19. To summarise what the noble Lord, Lord Davies of Brixton, said, there are actuaries’ reports that have all this information, and actuaries understand those reports. Amendment 19 concentrates on publishing something in a form accessible to employers and the public, and I think that that is very important, because actuarial practice is quite difficult to understand sometimes. It cannot be assumed that a member of the public could understand actuarial language. We need to be able to communicate in a way that is accessible to the people who actually bear the costs of the local authority pension scheme—the council tax payers. I do not think that that is met by the actuaries’ reports, which doubtless comply with all kinds of standards issued by the FRC and long-standing actuarial practice but, in my limited experience of looking at these things, are pretty difficult to understand.

[Lord Davies of Brixton (Lab)]

I do not think that I said that it was okay if actuaries understood the report even if no one else did. I have in front of me the last valuation report from the pension panel of the London Pensions Fund Authority. I have been looking through it and I think that it is a wonderful example of presenting difficult actuarial information in a way that is understandable to any member of the fund who is prepared to put a modicum of effort into understanding it. The report starts with a very clear and concise executive summary, picking out the important points, then goes through all the issues that need to be explained, around levels of prudence and why particular assumptions have been made. It is all in there, with lots of appendices alongside if you want a deep dive into the detailed data.

I do not think I said that these reports were understandable only by actuaries; these are big commercial organisations which support their clients by providing information in an accessible manner. That is part of their job and it is what I always tried to do when I was a scheme actuary. The feedback that I received was that people were pleased to understand what was happening to their money.

[Lord Fuller (Con)]

In my scheme, and in the one that the noble Lord, Lord Davies of Brixton, talked about, we take pride in what we do—but if only all the schemes did that. The value of these amendments is in taking the best schemes, which set the bar, and making sure that other schemes meet that bar in terms of transparency. Just a few of them doing it is not good enough; we want all of them to be doing it.

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[Lord Fuller (Con)]

I was coming to a conclusion anyway, so I will not detain your Lordships any further. I have made the points that I wanted to make.

[Lord Davies of Brixton (Lab)]

At the risk of receiving a glare from my Whip, I feel I have something to contribute to this group as well.

I will first make a general point. If noble Lords and noble Baronesses are going to quote specific examples, we need chapter and verse in order to understand what is happening. If we are just given figures, we are meant to absorb and draw some conclusion from them, which is not possible; we need to know chapter and verse of any examples that noble Lords quote so we can analyse and see what is really going on in that particular case. I have to say that my assumption is that, with all the examples we have been given, there is a readily available, understandable situation, and somewhere along the line there has been a failure of understanding.

On Amendment 20, my question for the noble Baroness, which she sort of answered, was: why is this amendment required? I think we were told that it is all too difficult, but of course it is not all too difficult. There is a big example: the London Borough of Kensington and Chelsea, which has a Conservative-controlled council, earlier this year made an interim change in its contribution rate to zero because its investment policy had been so successful. It is worth noting that it has a very successful investment policy and it is one of the smallest local government funds—something to bear in mind during the other debates on the Bill.

There is a question: how often should you undertake a valuation? There is a strong argument for three years because that provides some level of stability to the council’s finances. You have to remember that, over the last year or two years, a council may be paying too much or it may be paying too little, but that is not money down the drain; it either goes into the fund or does not, and it will be available or not available at the end of the three-year period. The money does not disappear if contributions are up, and it will be reflected in the future contributions that that council will pay.

I am also concerned that of course an employer will seek a review when it thinks its contribution is going to go down. I bet it will not seek a review if it thinks its contribution is going to go up, which provides exactly the sort of ratchet effect that the noble Baroness said she wanted to avoid. So it would be perfectly practical to do a valuation every year with the strength of the computers we have available now. It a long time since the day when I had to sit at a large square sheet of paper and do all the figures by hand: you just run the computer and there are the figures. I am sure the consulting firms will be happy to get all the additional fee income, but does it actually produce the advantages that we are told will be achieved through this amendment?

I note the points made by the noble Baroness, Lady Scott of Bybrook. I think it is a very valid point. It is a shame that whatever the local government department is called nowadays has not been involved with the Bill; it could have brought some perspective to where we are.

On Amendment 20A and benchmarks, I draw the attention of the noble Baroness, Lady Altmann, to a regular report from a group whose name I shall not get right—but there is a national group of local government pension schemes. Following each valuation, it produces a detailed report providing all the information she asks for. Again, the information is available. She is asking for this information, when it is already easily available online. On my iPad, I can look up all the information which it is being suggested is being hidden away. The importance of the Local Government Pension Scheme is obvious, and obviously there should be transparency, but the idea being promoted that we do not know what is going on in these funds is gravely unfair to the pension schemes concerned.

[Lord Katz (Lab)]

My Lords, I shall now respond to Amendments 20 and 20A. I am grateful to the noble Viscount, Lord Younger of Leckie, and the noble Baronesses, Lady Stedman-Scott and Lady Altmann, for tabling them. Amendment 20 seeks to revise the existing LGPS regulations to make it easier for employers in the scheme to request interim reviews of contribution rates. I welcome the intention to increase flexibility in how surpluses in the LGPS are treated, but it is crucial for any flexibility to be underpinned by robust safeguards to protect the long-term funding position of those funds. It is important, equally, to make the distinction between how surpluses are treated in the LGPS scheme and in other defined benefit schemes. At the risk of repeating my words on the previous group, within other defined benefit schemes, trustees can choose to release surplus where scheme rules allow. Clauses 9 and 10, which we cannot wait to get to, will increase that flexibility.

In the LGPS, the triennial valuation process already ensures that contribution rates are reviewed every three years and enables withdrawal of surplus through reduced contribution rates where it is prudent to do so. The interim review process is available as an additional mechanism to allow scheme employers, particularly those at risk of exiting the scheme, to seek lower contribution rates between valuations. Interim reviews may take place if it appears likely to the administering authority that the liabilities have changed significantly since the last valuation, if there has been significant change in the ability of employers to meet their obligations or if the employer has requested a review.

I welcome the call from noble Lords opposite to make interim reviews easier to understand and more transparent. I agree that regulations on interim reviews require revision, including on these points. Indeed, the department has already stated this in a letter to administering authorities—that was in March 2025. I understand the point that the noble Baroness, Lady Stedman-Scott, was making about the vicissitudes of the market and other changes that occur. Without wishing to be overly sarcastic, we could posit having reviews on an almost continual basis to try to anticipate market movements, changes in demographics or other external shocks. I am not for a minute suggesting that that was the intention behind the amendment, but it proves the point that, if we are going to break up the cycle of valuation, when and how we do it is a question for further debate. That possibly addresses some of the points that the noble Baroness, Lady Scott of Bybrook, was making as well. It is important that any changes to regulations are properly considered and avoid unforeseen consequences.