Pension Schemes Bill

Lord Palmer of Childs Hill Excerpts

Report stage
Monday 16th March 2026 Lords Chamber

[Baroness Altmann (Non-Afl)]

My Lords, I have added my name to Amendments 2, 4 and 5, so I will speak to those. I support the noble Lord, Lord Fuller, in his Amendment 1. The addition of the Pensions Regulator, alongside the FCA, is very important. I must declare my interest as a non-executive director of a pensions administration company and as a board adviser to a pensions DC master trust.

Amendments 2 and 5 are really important in the context of the Local Government Pension Scheme. The LGPS is an unusual type of defined benefit scheme; it is not like any of the others which are funded, because it is underwritten by the Government. It does not pay a levy to the Pension Protection Fund and the Government completely underwrite all liabilities, so of course the trustees are able, perhaps, to feel that they can take more risks than a defined benefit scheme, which is supported only by an employer which may fail and the members end up in the PPF. Having said that, unless the Government wish to change the Local Government Pension Scheme into another unfunded public sector scheme and just take all the assets in—which they could do—surely it is important to ensure that the trustees can make investment decisions that they believe are best, rather than the Government suggesting they know better and telling them what to do.

Amendments 2 and 5 both address restrictions on the ways in which the Local Government Pension Scheme can invest, whereby it has to choose to belong to one asset pool and that is it—it could not participate in another pool, even if it felt that that other pool had attractive attributes. I understand the Government’s intent—they would like pension schemes to support both local and national projects, as would I—but it should not be that you can support only the local projects that happen to be part of the asset pool that you must belong to. That is bound to turn these into discrete pools, rather than diversified pools where the trustees have a much freer choice.

The Government may be muddling the idea of scale with the idea of diversification. Both are important and both can deliver better outcomes for members, but trustees have to be able to choose which managers they believe can do the best for them. Quite frankly, usually it is the case that any one pool cannot be the best at everything. There will always be the need, as the noble Lord, Lord Fuller, said, for specialist expertise to be offered to pension schemes.

Amendment 4 is in the name of the noble Baroness, Lady Noakes, and she excellently explained what she intends it to do. The idea is that the Government should not dictate specific assets that pension schemes can invest in.

Although I have no problem with the Government incentivising particular types of investment, whether by offering better returns or different tax reliefs for investing in the ways the Government might wish—they might encourage a local pension fund to invest in its local area—the idea of mandating it with no option but to follow seems a step too far. I hope the Minister will understand that there is support for the ideas the Government wish to achieve, and which lie behind the stipulations in the Bill. It is just that the powers extend so far that we have no idea what might come next on mandation.

We are not talking about incentivising. We are 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.

[Lord Palmer of Childs Hill (LD)]

My Lords, first, I have to declare an interest because after 28 years as a councillor in the London Borough of Barnet, I am in receipt of a modest local government pension. I sometimes forget to declare that and I do so now. We have been lucky to have incisive speeches from the noble Lord, Lord Fuller, the noble Baroness, Lady Noakes, my colleague and noble friend Lady Bowles and the noble Baroness, Lady Altmann. After them, I almost want to ask, “Is there anything else one should say?”, but as a politician, I will do so.

This has been a useful debate on the future governance of the Local Government Pension Scheme, and there is a common theme running through it: the need to protect fiduciary responsibility while ensuring that governance is modern, credible and transparent. The amendments in this group range from consultation requirements to the possibility of participation in more than one asset pool, and to the important question of whether Ministers should be able to steer investments towards particular assets and places. I hope that Amendment 4 will be moved at the end of this debate; I would certainly want to support that amendment, if the noble Baroness decides to move it.

We on these Benches recognise that pooling can bring efficiencies and expertise, and we generally welcome the provisions on the Local Government Pension Scheme in the Bill, but bigger is not always better simply because it is bigger. Flexibility matters: if one pool has genuine expertise in a special asset class, there is 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 consultees matter. It is hard to object to hearing from bodies such as the Government Actuary’s Department and the Pensions Regulator before directions are given. These are basic disciplines of good administration; I only hope that the Local Government Pension Scheme uses those provisions.

Our wider concern remains the same one raised repeatedly in Committee: that 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 are dealing with very large sums, long-term liabilities and members who expect prudence—that was probably why they went into local government in the beginning—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.

The amendments in this group are pretty modest. As we go through the Bill, we will come to other amendments that would go further. The Minister and her colleagues should think again about whether these amendments improve the Bill. They are not against the Bill or the Government; they are prudent. They would provide fiduciary powers and the power to use them. I invite Ministers to take a step back and consider giving their support to these early amendments and asking their colleagues in the other House to do so. These are reasonable amendments. As I say, later in this debate there will be other amendments that go further. I would like to hear that Ministers feel there is some credibility in the amendments in this group, particularly Amendment 4.

[Viscount Younger of Leckie (Con)]

My Lords, I want to start by thanking my noble friend Lord Fuller for commencing our discussions on this important Bill, which is now on Report. We on these Benches look forward to an effective and constructive Report and hope that we can work with noble Lords across the House to make the improvements to the Bill that, in our view and that of many in the pension sector, are desperately needed.

Towards the end of my remarks, I will speak to the important Amendment 4, in the name of my noble friend Lady Noakes, but first I will speak briefly in support of Amendment 1, in the name of my noble friend Lord Fuller, and Amendments 2 and 5, in the names of my noble friend Lord Fuller and the noble Baroness, Lady Altmann. Taken together, these amendments would make constructive improvements to the Bill.

Amendment 1 would ensure that both the Government Actuary’s Department and the Pensions Regulator are formally consulted before directions are given in relation to asset pool companies. This seems an eminently sensible and proportionate safeguard. The provisions in the Bill give the Government significant powers to direct changes relating to LGPS pooling arrangements—changes that, in practice, may reshape the investment structures of some of the largest pension funds in the country.

Decisions of that magnitude should not be taken without the benefit of the best available expertise. Requiring consultation with the Government Actuary’s Department and the Pensions Regulator would ensure precisely that: actuarial and regulatory oversight would be brought to bear before such directions are issued. This would help to ensure that decisions that could materially affect the funding, governance and investment strategy of the LGPS are taken with expert input. That seems an entirely reasonable expectation when we are dealing with funds that collectively safeguard the retirement incomes—we must not forget this—of millions of public servants.

Amendment 2 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. This amendment would remove that provision. Doing so would give scheme managers greater independence in determining how best to structure their investments. If, as was mentioned earlier, one asset pool develops particular expertise 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 purpose.

The noble Baronesses, Lady Bowles and Lady Altmann, put it very eloquently. Preventing scheme managers accessing such expertise simply because they already participate in another pool risks imposing unnecessary rigidity on the system and is unnecessarily prescriptive and inflexible. By removing that restriction, this amendment would allow scheme managers greater freedom to act in the interests of their members—which, as the Government sometimes forget, must remain the central principle guiding all decisions in the management of pension assets.

Amendment 5 follows a similar logic. It would remove 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. In practical terms, this would facilitate cross-pool collaboration within the scheme. Rather than forcing each pool to operate in isolation, it would allow expertise and opportunities to be shared, broadening 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 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 LGPS operates that could significantly reshape the pensions landscape as a “coherent system”—as the noble Baroness, Lady Bowles, well put it—it is essential that those responsible for managing pension funds retain the flexibility to exercise their judgment in the interests of their members. Pooling can bring benefits, but it should not come at the expense of professional discretion or fiduciary responsibility. These amendments strike a reasonable balance: they would strengthen oversight where central powers were exercised, while preserving the ability of scheme managers to make decisions that best served the members whose pensions they are entrusted to protect.

--- Later in debate ---

[Lord Palmer of Childs Hill (LD)]

My Lords, this group asks for greater transparency around Local Government Pension Scheme valuations by requiring benchmarking against insurer pricing and gilt-based discount rates, with clearer explanations where more prudent assumptions are used. There is value in greater openness and comparability, but there is also a risk in appearing to imply that one benchmark can neatly settle what is, in practice, a complex actuarial judgment.

I was taken by the contribution from the noble Lord, Lord Davies. He really killed off the amendment by saying that it would give more work for actuaries. The tendency is for the actuary then to say, “On the one hand this and on the other hand that”. Very often, the advice is not even that definite anyway, which is why actuaries are there to confuse the issue altogether.

We should be honest about two things at once. First, employers and scheme participants need clearer information. If valuation choices materially affect contribution rates, local authority budgets and, ultimately, local services then those choices should be explained in language that non-specialists can understand. Secondly, the Local Government Pension Scheme is not simply an insurer in another form; it is a long-term, open, public sector scheme with characteristics that very much differ from closed private arrangements. Although comparison can illuminate, it must not mislead, as is the danger. A benchmark should be a tool for understanding, not a back-door instruction about how every valuation ought to be done.

That is why we on these Benches are cautious. We are sympathetic to calls for clearer publication, accessible material and meaningful consultation. Sadly, we are less persuaded by any suggestion that the right answer can be derived by mechanically comparing one prudence basis with another. The real issue is whether assumptions are evidence-based, proportionate and properly explained. If the Government believe that the present system already secures that then they should show it—I hope the Minister will do that when he responds. If not, there is merit in considering reforms that improve transparency without oversimplifying a technical process.

On that basis, we on these Benches do not oppose the spirit of scrutiny here, but we are not convinced that the amendment, as drafted, is the full answer. Therefore, we are not against what the amendment says, but we would not support it if it were moved to a vote.

[Lord Katz (Lab)]

I thank the noble Viscount, Lord Younger of Leckie, for the amendment, moved very ably by the noble Baroness, Lady Stedman-Scott. It seeks to improve the transparency of the assumptions and level of prudence applied in LGPS actuarial variations, including through the introduction of additional benchmarks.

The 2025 triennial valuation will conclude on 1 April, and at present we do not have a complete picture of its outcomes across the 87 different funds and more than 20,000 employers in the scheme. The amendment seeks to prescribe remedies before any diagnosis has been made or, indeed, any maladies have been fully understood.

Many of the matters raised will be covered by the Government Actuary’s Department report under Section 13 of the Public Service Pensions Act 2013. The report will assess whether employer contributions have been set at levels appropriate to ensure solvency and long-term cost efficiency, whether funds’ valuations comply with the regulations and the degree of consistency between them. Recommendations will then be taken forward by the Ministry of Housing, Communities and Local Government and the scheme advisory board.

Officials are already engaging with the Government Actuary’s Department, which is targeting a publication date of spring 2027 for its report and recommendations. Your Lordships’ House will be pleased to hear that this is earlier than previous valuations, which I hope demonstrates the seriousness with which we are taking the issues raised by 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.

It is appropriate for different funds and their advisers to use different discount rates, reflecting variations in risk appetite, employer profile and investment mix. It is helpful to understand how these approaches compare across the sector. The Section 13 review uses benchmarks to place local valuations on a comparable footing and may, in the first instance, provide useful insight into funds’ decision-making. There is a delicate balance to be struck. Members’ benefits are guaranteed in statute, but funds must ensure that they hold sufficient resources to pay those benefits over the long term through investment income and contributions.

My noble friend Lord Davies is right in his assertion that actuaries advise and funds decide. I salute, in making these contributions, his forbearance in not arguing for the interests of the national union of actuaries, of which I am sure is a founder member—at least he ought to be, if it does not exist.

We heard a fair amount on prudence, as we did in Committee, from the noble Lord, Lord Fuller, using his experience. In a locally managed scheme, it is for funds to work with their actuarial advisers and employers to set a contribution rate that supports the long-term viability of employers and the fund. The Section 13 report prepared by the GAD will consider questions of prudence—that is, how the discount rate is set and how stability is applied to contribution rates. Were the Government to set correct valuation assumptions, they would risk undermining the principle that funds and expert actuarial advisers are responsible for ensuring the long-term sustainability.

A push for greater intervention at the valuation risks moving from a locally managed scheme to a centrally managed scheme. We heard much about that in the discussion on the previous group of amendments. The implications are real and far reaching, decreasing rather than increasing the role for locally elected representatives.

On transparency, the amendment would require additional detail on assumptions and benchmarks in the funding strategy statements and 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, such as funding strategy statements, being easier to understand for the lay reader. 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, outline the approach to contribution stability and summarise the main actuarial assumptions used at the valuation.

To respond to the noble Lord, Lord Fuller, the funding strategy statement is consulted on, and the SAB guidance already says that the purpose of the FSS is to establish a “clear and transparent” strategy that explains how liabilities will be met and

“how the fund balances the interests of different employers”.

We must not jump to conclusions about how the valuation has played out for every fund and employer. There are already examples of good practice, including meaningful employer consultation and capable pension committees with the confidence to interrogate their actuary’s advice to fully understand the proposed contribution rates.

In his evidence to the Committee on the Bill in the other place, Roger Phillips, chair of the LGPS advisory board, said about the treatment of surplus that

“we live in a very volatile situation, and circumstances can change. You have to be careful, because if you reduce contribution rates considerably, that is a great benefit at this moment in time, but if you then turn around and start to increase them again, that can be very difficult for all employers to deal with, including local government”.—[Official Report, Commons, Pension Schemes Bill Committee, 2/9/25; col. 41.]

Until the valuation has concluded, we cannot reach a definitive view on how the interpretation of regulations and guidance and the quality of employer consultation have shaped the results that will apply from 1 April. As part of their review, the Government will ask the Government Actuary’s Department to 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 have committed to additional work with the GAD on how discount rates and the application of stability mechanisms affect 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 triennial valuation 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 ask the noble Viscount, Lord Younger, or the noble Baroness, Lady Stedman-Scott, to withdraw the amendment.