Local Government Pension Scheme

Chris Stephens Excerpts

Monday 24th October 2016 Westminster Hall

[Jack Dromey (Birmingham, Erdington) (Lab)]

It is a pleasure to serve under your chairmanship, Sir Edward. Let me start by referring back to my earlier intervention. As national secretary of the Transport and General Workers Union, I was chair of the trade union side that conducted a series of negotiations on the local government pension scheme, and I worked very closely with the local government pension scheme at a national level on a range of the issues that have been referred to in this debate.

Who are the people we are talking about? They are the care workers who look after the vulnerable, the disabled and the elderly. They are the Karens, whom I met at Osborne nursery school but two weekends ago—outstanding education assistants who help kids get the best possible start in life. They are the dustmen, the refuse collectors and the people who go out and keep our streets clean—my uncle Mick, who lived with me until he sadly died, was a street cleaner. They are social workers who take care of, among others, looked-after children who badly need the support that social services and children’s services can deliver.

The millions who depend upon the local government pension scheme, which is fundamentally a good scheme, include not just those who are directly employed but those such as bus workers, who were originally directly employed by local government bus companies and have now been transferred but are still in the local government pension scheme. There are tens of thousands of contractors’ employees who enjoy what is called admitted body status. I know that because I negotiated admitted body status to ensure that, if those workers are transferred to the private sector, they remain in the local government pension scheme. The pension scheme is a good one. It is fundamentally one of the most democratic schemes in the country. I have often argued over the years that the voice of workers should be heard louder in relation to some of the local administrations of the pension scheme.

I have been personally involved not just in the negotiations. I have, for example, addressed two conferences for the scheme at national level on the issues of collaboration to ensure ethical investment, which is absolutely a legitimate concern, and infrastructure investment. The then national chair of the local government pension scheme, Kieran Quinn, said, “Why are we investing in light transport in Taiwan when we should be investing more in developing infrastructure here in Britain?” Of course, that is absolutely right.

The hon. Member for Ross, Skye and Lochaber (Ian Blackford) referred to housing. I remember opening a housing development with the leader of Manchester City Council, where local government pension scheme investment was key to building hundreds of affordable homes. The objectives of having an ethical approach and greater investment in infrastructure are absolutely legitimate—so, too, is the move towards pooling. We have got to get it right, but in my time we used to argue for pooling and greater collaboration to make more effective investments.

What is fundamentally wrong about the proposal is that the Government are elbowing to one side the world of local government and telling millions of pensioners how their pensions might best be delivered.

[Chris Stephens (Glasgow South West) (SNP)]

Surely, it is legitimate for a political party in a local authority administration to seek from the electorate a mandate on how it will invest in its pension funds. That is what the Government are interfering with.

[Jack Dromey]

The hon. Gentleman is, of course, right. He has a background in Unison—one of the major local government unions. It is simply wrong for Whitehall to tell millions of pensioners and town halls what they should do in the future. It is also potentially unlawful, and a very strong case was set out earlier to that effect.

We have shared objectives: a greater ethical approach, infrastructure investment and pooling. Why do the Government have to continue to blunder down this path? There was an extraordinary response to the consultative process, and people overwhelmingly said, “No, no!” The Government should now, even at this stage, listen and get back into discussions with the scheme itself and the local government unions.

How do the Government square their approach over the local government pension scheme with two stated public policy objectives? The first is localism. I remember leading for the Labour party in the endless negotiations when the Localism Bill was going through Parliament in 2011. Power to the people? This is more Leninism than localism.

The second objective is this. The Government have had a damascene conversion. Not since Saul fell off his horse on the road to Tarsus have a Government made such a change. Historically the enemy of working people, they are now posing as the friend of working people—the champion of working people—but what they intend to do is to say to millions of working people, “No matter what you think, no matter what your concerns are, we are going to tell you how your pension scheme should be invested in the future.” That simply cannot be right.

[Kate Hollern (Blackburn) (Lab)]

It is an honour to serve under your chairmanship, Sir Edward. I thank the hon. Member for Ross, Skye and Lochaber (Ian Blackford) for securing this debate, and I thank hon. Members who have articulated their opinions clearly on this issue.

We have heard about a variety of interesting options for and aspects of the upcoming changes, but the nub of the matter is that 5 million people rely on the local government pension scheme. Like other people who have pensions, they rely on their pension trustees—the pension boards—to invest their funds in their best interests. To me, that is a simple principle—I am sure everybody can understand it—so why has it taken more than 100,000 people to sign a petition on something so obvious? It is obvious to everyone that local government means local. Pension schemes belong to those people; they have paid in, so they should have the right to say how that money is invested—no more and no less.

Despite that, 98% of respondents to the Government’s consultation rejected the proposals. The Government have ridden roughshod over those views. They tabled in Parliament a statutory instrument that will become law on 1 November. It comprises a new set of local government investment regulations under which the Government can instruct local government pension scheme administrators on how to invest their money. With no debate in the House to help to influence the measure and warn of any potential pitfalls, the pensions of 5 million scheme members, worth £178 billion—it is the fourth-largest pot in the world—will be dictated to by the Government.

As my hon. Friend the Member for Birmingham, Erdington (Jack Dromey) made clear, this is about people’s pensions and people’s lives. This is about school janitors and cleaners.

[Chris Stephens]

It is also about deferred pay for precisely the reason the shadow Minister outlined. Local government employees pay in, unlike other public sector pension fund members. A local government worker’s pension is deferred pay.

[Kate Hollern]

I agree entirely. This is an appalling misuse of power, and contrary to the best interests of scheme members, who want to ensure that their pensions are invested in the way they want, not the way the Government wants. It also flies in the face of European law. Article 18 of the directive on institutions for occupational retirement provision—hon. Members have already covered this point—clearly states that pension funds must invest

“in the best interests of members”,

and that

“Member States shall not require institutions to invest in particular categories of assets.”

We are in the mid-chaos of Brexit, but article 50 has yet to be triggered and we are still working under European Union directives, so we are breaking that law.

As usual, the Government are using a sledgehammer to crack a nut, and we have spoken about the back-door policy of avoiding councils that have, for ethical reasons, concerns about investment in some areas. The guidance attached to the regulations states that

“using pension policies to pursue boycotts, divestment and sanctions against foreign nations and UK defence industries are inappropriate, other than where formal legal sanctions, embargoes and restrictions have been put in place by the Government.”

In summary, therefore, administering authorities should not pursue policies that are contrary to UK foreign or defence policy. There is, however, little or no evidence that the local government pension scheme has ever undertaken investment decisions in that way, and the Government should not be imposing their foreign and defence policies to the detriment of LGPS pensioners.

The Government need to listen for a change. They need to listen to the 105,000 people who signed the e-petition, to the Local Government Association, to the public sector unions representing their members and to the Law Commission, which commented on the LGPS investment regulations for England and Wales:

“We think two aspects of the LGPS Regulations could usefully be reviewed. First, in practice administering authorities consider themselves to be quasi-trustees, acting in the best interests of their members. We think that the same rules which apply to pension fund trustees in taking account of wider or non-financial factors will also be taken to apply to LGPS administering authorities. There is an argument that the IORP Directive requires this. However, we think that uncertainty on this point is undesirable and that the matter should be put beyond doubt. It would be helpful if the LGPS Investment Regulations made it clear that administering authorities must act in the best interests of pension scheme members.”

We cannot stress strongly enough that the authorities must act in the interests of members.

Why are the Government ignoring those voices? Why have the Government refused to listen? Why did they even bother to carry out a consultation, if they then ignore 98% of the results? Why are the Government not looking at everything again carefully? I fully support pooling arrangements; they are great if they get the best for the scheme members. The regulations should not be a way for the Government to borrow on the back of pensioners, or to dictate where and where not the pension fund may be invested.

Why have the Government failed to take the arrangements through the House of Commons? Because they know they are wrong. My hon. Friend the Member for Birmingham, Erdington spoke about localism. He was absolutely right: this is the reverse of localism; it is dictatorship. The Government have no right to interfere in people’s pensions. The consultation went out and the Government, I am quite sure, felt that their proposal was a good idea, but the people who own the fund have said no. I beg the Government to listen and to put a hold on their scheme.