Pension Schemes Bill

Baroness Altmann 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.

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[Baroness Altmann (Non-Afl)]

My Lords, I support this amendment. This is an important time to talk about the contribution rates to the Local Government Pension Scheme. When funding has changed so substantially in a very short period of time, having an interim review clearly makes sense, for not only the local authority but the council tax payer.

As we heard in a previous debate, we are seeing councils with significant surpluses continuing to spend council tax income on pension contributions to schemes that do not need them because they are in significant surplus. Further, fixing contribution rates in a three-year cycle underestimates the timeframe that has gone into the setting of those rates, because the valuations on which those rates are based were done more than three years before the third year of the cycle. It takes about a year for the scheme valuation to be done and the contribution rates to be set, so they could easily be four years behind. A lot can happen, and has happened, in that timeframe.

I hope the Government will accept that this principle of allowing councils to be more flexible with the revenue that they receive from council taxes could benefit local authorities and the country. We know that councils have been forced to increase council tax due to their inability to meet their basic spending commitments. If the amount that councils spend on pension contributions could instead be spent on social care, or other local authority needs, they would require less money from local residents—which would improve the local economy, as tax rates would not be so high—and central government. The pressure on public spending could therefore be ameliorated.

I know that there is a principle of trying to achieve what is referred to as stability in contribution rates, so that they do not change too much from one year to the next. However, when there are significant changed circumstances, forcing schemes to fiddle the assumptions on which the scheme funding is based so that local authorities can somehow justify maintaining contributions to a fund that, 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. A review of how pension contribution rates are set at local authority level is probably long overdue, given the big changes that we have seen, and could help the Government with some of the funding strains that they have been feeling, and their 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 is underwritten by the Government anyway, so its members’ benefits are not at risk, you have a very different scenario from that a private sector employer’s trustees might be facing: if the contributions stop and the employer gets into trouble, there is nothing much that can be done to ameliorate the position for members. That risk does not really exist in a local authority pension scheme. As I say, there is no contribution to the Pension Protection Fund and no underwriting; this is guaranteed by taxpayers.

Therefore, if you are raising taxpayer revenue from council tax, why not simply use it where it is needed, rather than putting it where it is not needed for now? You can always come back later and impose contributions when or if the funding position changes, but the scheme is not going to run out of money in any short-term period; that is not how pension schemes work. I therefore hope that the Government will appreciate the logic of this amendment, which was so ably moved by my noble friend on the Front Bench.

[Lord Katz (Lab)]

I thank the noble Viscount, Lord Younger of Leckie, for his amendment, and I share the interest in ensuring that interim valuations are accessible and transparent for all employers in this scheme.

Amendment 12 proposes changes to Regulation 64A of the Local Government Pension Scheme Regulations 2013, which concerns valuations carried out outside of the triennial valuation cycle. In Committee, I committed that the Government will consult on changes to Regulation 64A this year, and we will consider the matters raised as part of that consultation.

I reiterate the point I made in Committee: any changes to regulations need to be properly considered to avoid unforeseen consequences. The views of employers, funds and other sector groups are vital to this process, and amending legislation now would prevent them contributing to the policy design and therefore ensuring our ability to get the best possible outcome. There is clearly value in having a mechanism that allows employers to review contribution rates, especially where employer covenants or liabilities change significantly, but this must remain consistent with the triennial valuation and be workable for all participants across the sector.

Amendment 12 aims for additional transparency, in a similar vein to the other amendments we have discussed this afternoon. The noble Viscount should note that the policy on interim valuation contribution reviews is set out in the funding strategy statement, on which employers are consulted.

The noble Baroness, Lady Altmann, spoke in detail about the time lag of valuations and the impact of events in the financial cycle. As everyone will be aware from geopolitical events, markets can vary from one day to another. Simply requesting a valuation on the basis of a change in the day’s markets would be excessive, and indeed many funding strategy statements state this. The current regulations provide for interim valuations on the basis of changes in liabilities or covenant. The risk of liabilities not being met is that the burden goes up not for the Government but for the council tax payer, as a council that may not be in a good financial position, as the noble Baroness says, needs to increase council tax to cover liabilities. The Government do not underwrite the scheme. Your Lordships’ House should remember that 50% of LGPS employer contributions are not from local authorities, so we are not talking about a situation where it is exclusively local authorities that would cope with the change.

I said in Committee—and I could have said this in response to the previous group as well—that it is marvellous to see the Benches opposite show concern now about the funding of local authorities. We are concerned about it, and we were concerned about it for the previous 14 years when the Benches opposite were in government and had a differing view of imposing austerity on local government. I will say no more, and I apologise to your Lordships’ House—I could not help myself, having been very good on the previous group.

I hope my response demonstrates that the Government have considered the points raised through this amendment carefully. I therefore ask the noble Viscount, Lord Younger of Leckie, to withdraw Amendment 12.

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Moved by

[Baroness Altmann]

13: Clause 9, page 10, line 36, at end insert—
“(6A) Prior to making modifications to scheme rules in line with this section, trustees must commission and consider relevant formal actuarial advice regarding the impact of surplus distribution on scheme funding and future member or employer benefits and must consider alternative approaches for dealing with a surplus that include—(a) running the scheme on without new contributions,(b) transferring to a superfund, and(c) buying annuities.”Member’s explanatory statement
This amendment would require trustees to ensure they have had formal advice about surplus distribution before changing scheme rules, and the impact of alternative ways to deal with scheme funding.

[Baroness Altmann (Non-Afl)]

My Lords, Amendment 13 is in my name. I shall also speak to Amendment 15, which is very similar. I also support the aims of Amendments 14 and 16 to 19, which seek to make sure that members’ interests are taken into account when trustees distribute, or consider distributing, a surplus to employers.

Amendment 13 seeks to build on the important discussions we had in Committee. I thank the Minister for her thoughtful responses to those discussions. I appreciate the Government’s commitment to ensuring that defined benefit pension schemes can contribute to economic growth through the prudent and efficient use of their substantial surpluses. With around £1.2 trillion in private sector defined benefit assets—and that is on prudent measures—the potential for positive impact is huge, given the estimated £240 billion surplus from those 4,500 schemes.

Trustees who have stewardship over these assets on behalf of around 9 million scheme members are now being encouraged to make strategic decisions which could reshape some schemes for the future and deliver broader benefits, potentially both to members and to the economy. The Bill is correct in encouraging that to happen. Of course, trustees have significant responsibilities when they assess a scheme’s surplus and whether to it pay out or to preserve it. As the noble Lord, Lord Davies of Brixton, has so often reminded us, a surplus is merely a reserve—a buffer against future bad markets, perhaps. In some schemes, the extent of that surplus is so significant, with the employer having put in so much money during the past few years, because of the impact that quantitative easing had for so long on pension schemes’ liabilities, that it is perhaps appropriate for trustees to consider whether employers should be able to get some of that money back, especially if they could invest some of it into their business and help grow the strength of the employer behind the scheme.

As trustees have these greater responsibilities, my amendment seeks to ensure that the relevant comparisons are being made before any surplus is distributed, so that the trustees have considered the available options. The current Technical Actuarial Standard 300 would properly inform them. This would include not just paying out a surplus but running the scheme on for the benefit of the members. It could also include possibly finding a new employer sponsor who could manage the scheme with a greater strength behind it and take advantage of the surplus to some degree both to enhance member benefits and to return some money to the employer.

The noble Lord, Lord Davies, may well tell us that these technical actuarial standards and the reports, such as TAS 300, are already in place, so why do we need the amendment? I am informed by significant areas in the pension industry that advise many DB schemes that, although there is a requirement for these reports, trustees do not always take note of them. They are not even always presented to the trustees. 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.

This amendment makes it clear to trustees that they must consider the broader actuarial advice—not just asking whether they should pay out the surplus and how much they should pay out but considering the other options that would be available. Many trustees will consider paying out a surplus alongside a scheme buyout, for example. This actuarial report would help to inform the trustees of the potential benefits and improvements to members that could be achieved by not buying out and by running the scheme on, for example.

At the moment, for each £1 billion of buyout funding that exists in a scheme, if they buy out, approximately £150 million to £250 million then goes to the insurance company in profit because it takes in the money but then rerisks it but invests in higher return assets—so it makes that profit. 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.

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I am grateful for all noble Lords’ contributions. However, for the reasons I have outlined, I hope the noble Baroness feels able to withdraw her amendment and I ask that noble Lords support Amendment 21 in my name.

[Baroness Altmann (Non-Afl)]

My Lords, I thank the Minister for her thoughtful and considered response. I also thank all noble Lords who have supported my amendment, including the noble Lord, Lord Davies, and the noble Viscount, Lord Thurso. I had hoped that the noble Lords on the Opposition Front Bench might be willing to support me if I were to press this to a vote, but it sounds as if that is not the case. I hope that the Government will be successful in ensuring that when pension scheme surpluses are paid out, members are considered carefully. I know that the Minister considered this would be unnecessary bureaucracy. I have to say that it is a requirement, but one that is not always adhered to, and the mechanisms for overseeing it do not seem to have been working.

More particularly, what I had hoped this amendment could help achieve was not only helping the trustees meet member benefits but, in many circumstances, potentially improving member benefits beyond what is currently payable. Yes, they need appropriate advice but, given the state of pension schemes, there is a significant opportunity to improve the amount of money paid to members alongside the decisions to pay out surpluses. Therefore, if the noble Viscount, Lord Thurso, decides to move Amendment 14 and test the opinion of the House, I certainly would be minded to support him. However, I beg leave to withdraw Amendment 13.

Amendment 13 withdrawn.