Pension Schemes Bill

Baroness Noakes Excerpts

Report stage
Monday 16th March 2026 Lords Chamber

To summarise, there really should be a single national specialist infrastructure pool if we are serious about the LGPS investing in the long-term future of our nation. All the pools should be able to join—a southern pool investing in the north and vice versa, and other pools investing just over the boundary in opportunities where their members gain. If we do not permit this, it will contribute to poorer incomes in retirement and damage trust and confidence in a pension scheme that is already on shaky ground. I beg to move.

[Baroness Noakes (Con)]

My Lords, I have Amendment 4 in this group. This concerns mandation, which we will debate more extensively later this week in connection with defined contribution schemes. Amendment 4 seeks to ensure that mandation cannot apply to the LGPS. This amendment should be easy for the Government to accept. This mandation amendment, unlike the ones we shall debate on Thursday, reflects what the Government have said is their policy.

Clause 1 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 2 says that any Clause 1 regulations must—not may—

“make provision about the management of the funds and other assets”.

As is usual with regulation-making powers, they are unconstrained. While Clause 2 lists some of the things that could be included in the regulations, it contains no restrictions on the use of the power.

I have tabled Amendment 4 seeking to ensure that the power cannot be used to tell local government schemes to invest in particular assets, asset classes or locations of investment. I firmly believe that fiduciary duties are paramount and should never be interfered with by the Government, whether in relation to public sector schemes such as the LGPS or private sector ones, which we will debate on Thursday. The noble Lord, Lord Katz, said in Grand Committee on 12 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”.—[Official Report, 12/1/26; col. GC 244.]


The issue is not whether the power is a backstop power or whether the Government intend to use it but whether the Bill could be used—by this Government or some future Government—to mandate investments in the LGPS.

Clause 2 is clear that regulations under Clause 1

“must make provision about the management of the funds and other assets for which the scheme managers are responsible”.

Subsection (2) goes on to require an investment strategy, and subsections (3) and (4) allow the Secretary of State to specify what is in that strategy, including strategic asset allocation. 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 that would have allowed the Secretary of State to direct LGPS investment activities. It 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 1 and 2. I hope the Government will agree that certainty is required in this area. My amendment would put matters beyond doubt. If the Government do not accept Amendment 4, I am currently minded to test the opinion of House when it is reached.

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I will speak to Amendments 2 and 5, which address the same underlying issue—whether pooling and expertise in the Local Government Pension Scheme is intended to support good investment decisions or to constrain them. I will speak in support of Amendment 4, to which I have added my name.

No one disputes that there can be value in scale, but scale does not require exclusivity. Nothing in the case for pooling requires funds to confine to a single pool, unable to access specialist expertise developed elsewhere. The LGPS is a federation of, I think, 89 funds with different demographics, liabilities and investment strategies. It is entirely foreseeable—indeed, it is already happening—that one pool will develop a particular strength in, say, infrastructure, and another in renewables or local investment opportunities, or, as has already been outlined, it may be that the investment opportunity is large and accessible only by more than one joining together. Why should a fund be prevented from accessing that expertise or that scale simply because it sits in a different pool? Looking at it from the non-scale end, I have personally spoken to fund managers who wanted to invest local to support infrastructure at local scale but who do not want all that exposure in their own area, for reasons of diversification. They have had their fingers burned with shopping centres. The current drafting would make that unnecessarily difficult.

In Committee, the Government were clear that they want to avoid forced or value-destructive transfers of assets between 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. If a fund can access a specialist vehicle without having to replicate it internally or move assets unnecessarily then that is a win for the scheme members. The purpose of pooling was to broaden access to expertise, not to narrow it; to create economies of scale, not to create silos; and to support better long-term investment decisions, not to restrict the routes through which those decisions could be implemented.

The noble Lord, Lord Fuller, has reminded us of many of these issues, as he did in Committee. 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. These amendments go directly to that point, and it would be beneficial if the Government could recognise this—I really cannot see what they would take away.

I therefore suggest that the Government seriously consider adopting these amendments. They are modest but important. They would not weaken pooling but strengthen it, they would not undermine scale but enhance it, and they would not challenge the Government’s policy direction. They would simply ensure that the LGPS could operate as a coherent system, rather than a set of sealed compartments. I hope that the Minister will see them as constructive corrections to support fiduciary duty, improve efficiency and help deliver the very outcomes that the Government say they want.

I turn to Amendment 4. The noble Baroness, Lady Noakes, has already explained in detail why it is a good amendment, and we on these Benches support it. It would be a safeguard to make sure that the same kind of mandation that the Bill contains for default pension funds did not creep across through regulations into the LGPS. That may not be the intention now, but, as elsewhere in the Bill, there are no safeguards against the future intentions of we-do-not-know-who in a change of circumstances. It is a 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. 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 cannot creep into local government. I therefore support Amendment 4, and we will support the noble Baroness, Lady Noakes, if she is minded to divide the House.

--- Later in debate ---

Moved by

[Baroness Noakes]

4: Clause 2, page 4, line 24, at end insert—
“(4A) The provision made by virtue of subsection (1) may not include any provision about investment in specific assets or asset classes or about the location of investments.”

[Baroness Noakes (Con)]

My Lords, I beg to move.