Pension Schemes Bill

Lord Fuller Excerpts

Report stage
Monday 16th March 2026 Lords Chamber

Moved by

[Lord Fuller]

1: Clause 1, page 2, line 31, at end insert—
“(ca) the Government Actuary’s Department;(cb) the Pensions Regulator;”

[Lord Fuller (Con)]

My Lords, it is a pleasure to open Report on the Pension Schemes Bill. As we start, we should be clear that the Bill’s success will be measured on the extent to which it makes it easier for people to take personal responsibility and save for their future, and make their savings secure, while permitting appropriate risk-taking and capital to grow the economy.

I should declare some interests. I have been a trustee of the Norfolk pension scheme for well over 20 years and a member of the Local Government Pension Scheme advisory board since its inception—in fact, I will retire from that on Monday. During that period, I have served on the Firefighters’ Pension Scheme and been chair and vice-chair of the Local Government Pension Committee, which is the body representing the employers in the scheme.

Today is about the Local Government Pension Scheme. The LGPS is different from most of the other public schemes because members have put money aside for their retirement—and that is important. My Amendments 1, 2 and 5—to which the noble Baroness, Lady Altmann, has added her name—relate to the overarching structural organisation of the 87 schemes that feed into a number of pools.

Let us dispose of Amendment 1 first. In my personal experience, I have found that just limiting the list of consultees to the FCA would be insufficient. I think there has probably been a misunderstanding in the department about the fact that the Government Actuary’s Department and the Pensions Regulator really do get involved there. While I would not press the amendment to a vote, I think it is pretty straightforward. If we do not have the Pensions Regulator and GAD—which look after 50 or so other things, apart from investment—the Bill would be holey.

I have my reservations about government interference in the structure of pools. It damages the purity of the relationship and accountability of the trustees to act in the members’ best interests. Rachel Reeves will be a footnote in history by the time the cows come home with the consequences of some of the provisions in Clause 1. The approach of mandating pools has already damaged the scheme. For no good reason, the exemplar access scheme was told to disband; it had £40 billion-worth of assets under management, but that was not good enough. It had access to the best FCA global professionals in the City of London. Now it is being forced to join a provincial pool, which—for goodness’ sake—does not even have an FCA qualification.

Elsewhere in the Bill, there are restrictions that prevent a scheme from belonging to more than one pool. For reasons I will now explain, this incomprehensible restriction will mean that the Government thwart their own ambitions to bring the LGPS assets to bear to invest in other wise and appropriate investible infrastructure opportunities outside their home patch.

My amendment would allow any good opportunity that has been signed off, so to speak, by one LGPS fund to be available to all the others, whether the fund was in that pool or not. The LGPS is the closest we have to a national wealth fund. Two years ago, its total assets under management were valued at more than £390 billion—and it is much more than that now. These things change but, by some measures, it is the world’s fourth- or fifth-largest scheme. Some 6.68 million Britons belong to that scheme. It may be a large scheme, but the members are not fat cats: the typical member is a 47 year-old person earning £18,000 a year and who may, after a period of very long service, attain a pension of £5,000 a year. In the next group, I will refer to this number, but investment returns for 2024 on the LGPS were 8.9%, with a broad asset allocation of equities, bonds, property, and so forth. The investment and management costs grew by much less than inflation—2.9%.

The scheme that I am a member of in Norfolk has a cost per member of less than £20; it is half the cost of anywhere else. When I came to that scheme in 2007, there were £1.8 billion of assets. That is now nearly £6 billion. When I leave the trusteeship in May, I will look back with satisfaction. It is a British success story. The noble Lord, Lord Davies, trumpeted this in Committee. With all this interference and fettering of the ability of the trustees to put the members’ best interests first, what is the problem that the Government are trying to solve here?

I make no apology for rehearsing this as I open Report. The success story that is the LGPS should play an important part in investing in and renewing our nation. I am not against scale. I know there are some schemes at £500 million that need to bulk up, although I am bound to say that one of the smaller schemes in the Orkneys has the best performance of all the schemes in the whole scheme. There is something to be learned there.

--- Later in debate ---

[Noble Lords]

Order!

[Lord Fuller (Con)]

My Lords, it has been an interesting debate. The LGPS is special. It is the closest thing, as a number of noble Lords have said, to having a sovereign wealth fund in our islands, and I am unconvinced by the points made by the noble Lord, Lord Katz. He has misunderstood what local investments are. I do not accept for a moment his reassurances around the creation of specialist pools. As my noble friend Lord Younger said from the Front Bench, this increases unnecessary rigidity, damages coherence and misunderstands the distinction between funding and financing.

I suppose noble Lords can be grateful for at least one thing: as the noble Lord, Lord Katz, was at the Dispatch Box, it saved the Minister, the noble Baroness, Lady Sherlock, repeating the old trope that the large Ontario and Canadian pension funds are the sorts of things against which the LGPS should be marked. Today, the Financial Times reported that the Ontario funds have fallen away by 5.3% over the last year, while the LGPS has grown by 9%. This is what happens. I am conscious that I am winding. I will not press Amendments 1, 2 and 5 to a vote, but I will support my noble friend Lady Noakes in the Lobby if she chooses to divide the House.

Amendment 1 withdrawn.

--- Later in debate ---

[Baroness Stedman-Scott (Con)]

My Lords, I move Amendment 9 standing in the names of my noble friend Lord Younger of Leckie and myself. During the passage of this Bill, we on these Benches have had a great many discussions not only in this Chamber but with industry experts, scheme managers, employers and others who will be directly affected by the provisions before us. Those conversations have been extremely valuable and have revealed something that many of us have found increasingly concerning. We have been made aware that, in a number of cases across the Local Government Pension Scheme, employers are being asked to contribute very substantial sums into pension funds; these levels of contribution appear to go well beyond what would be required for those funds to be fully funded, even on a very prudent basis.

Of course, prudence is essential in pension funding, and no one in this House would dispute that. Pension promises stretch decades into the future, and it is right that those responsible for safeguarding them take a cautious and responsible approach when assessing liabilities and setting contribution rates. What we are seeing in some cases, however, appears to move beyond prudence into excessive prudence. When contribution requirements are set significantly above what would be necessary even under extremely cautious valuation assumptions, the consequences are that employers, local authorities, academies, housing associations and others are required to divert even greater sums of money into pension funds.

The money does not come from nowhere; it comes from taxpayers and from public budgets, which might otherwise be used to fund and support local services, improve communities, invest in schools, support vulnerable people and deliver the many things we all want councils and public bodies to be able to do. If those employers are being asked to contribute significantly more than is necessary to secure the pensions of their members, we have to ask whether the balance between prudence and proportionality has shifted too far. That is precisely the issue this amendment seeks to address.

Amendment 9 would introduce an important requirement for transparency, requiring Local Government Pension Scheme valuations to be benchmarked against two widely recognised measures: insurer pricing—specifically, bulk annuity pricing—and evaluation based on gilt discount rates. Those benchmarks would then be published alongside the scheme’s official funding valuation.

Crucially, where the scheme’s official valuation is materially more prudent than those benchmarks, the administrating authority would be required to publish a clear statement explaining three things: first, what risk the scheme was seeking to guard against; secondly, why those risks justified the high level of prudence being applied; and, thirdly, what the impact of that additional prudence would be on employer contribution rates. In other words, the amendment would introduce transparency around the actuarial assumptions being used; it would allow employers, scheme members and the wider public to see how prudence affects contribution cost; and it would give those who are paying into the scheme the ability to understand—and where appropriate, question—the basis on which those cost are being set.

This intention should not be controversial. Indeed, one might reasonably argue that it should be a basic feature of the system. Where decisions are being taken which require significant contributions from public bodies, there should be transparency about how those decisions are reached, there should be honesty about the assumptions being applied and those affected should have the information necessary to exercise agency and scrutiny.

What this amendment seeks to achieve is not to undermine prudence—quite the opposite. Prudence remains vital in pension funding. But prudence must be accompanied by accountability, and when additional prudence is applied, particularly where it carries significant cost implications, it should be clearly explained and justified. The fact that our amendment would require those benchmarks, the funding strategy statement and employer contribution rates to be published together, is another key point. It would allow stakeholders to see the full chain from market comparison to actuarial judgment to the costs ultimately borne by employers.

This amendment therefore strikes a sensible balance. It would preserve the independence of actuaries and the integrity of the valuation process, while ensuring that the consequences of those decisions are visible and understood. For employers, it would provide clarity; for scheme members, it would provide reassurance; and for taxpayers, it would ensure that the significant sums being directed into pension funds are subject to appropriate transparency. For those reasons, this amendment represents a constructive and proportionate improvement to the Bill. It asks only that, where high levels of prudence are applied, they are accompanied by explanation and openness. That seems to me an entirely reasonable expectation, and I will test the opinion of the House when it is called.

[Lord Fuller (Con)]

My Lords, I support Amendment 9 in the names of my noble friends on the Front Bench and place on record that there are some very good behaviours among the Local Government Pension Scheme administering authorities that already follow the path laid out in the amendment, which would then be placed on a statutory basis.

I would not want people to think that none of that best practice happens, or that the numbers are just plucked out of the air—that is not the way it is at all. The purpose is that all schemes reach expectations and assess their liabilities in aggregate, not just for each of the councils—most people without this House would think the LGPS is a scheme for councils—but all the other admitted bodies as well. As I said in the previous group, when I first joined the Norfolk scheme about 20 years ago, there were about 70 admitted bodies; there are now 500, so it is extraordinarily complicated. Nationally, on a whole-of-LGPS basis, there are 6,160 scheduled bodies, 3,639 admitted bodies, 478 designated bodies—I do not know what they are, but I think they might be with the Environment Agency—and 15,049 employers with active members.

The key thing, in support of my noble friend Lady Stedman-Scott, is that when we look at all these contribution rates, it is not just taking the scheme in aggregate; we have to drill down to all the particular liabilities for each employer in the scheme. I am now drifting into the complication we often hear so much about, which is used to obfuscate the scheme. What I really like about this amendment is that it stops people who know about the Local Government Pension Scheme from hiding behind that complexity and obfuscation. It will require members to publish in plain language how the numbers are arrived at and what this amendment seeks to achieve.

Again, to repeat some of my history, when I first joined the Norfolk scheme, which is a good example, it was 79% funded. We shovelled in cash like it was going out of fashion. Now, 20 years later, it is 130% funded. In the last three years it has gone up 25%. These big swings militate against stability and sustainability. Over the years there has been a pessimism bias, which has meant that council tax, councils and admitted bodies have put much more money into the scheme. Partly, there was groupthink from the regulators, which forced us down this path.

However, I want to provide reassurance. When you look at the assumptions that I have been involved in, over five triennial revaluations now, there is a fan of opportunities and scenarios that the actuaries run on the membership of the scheme, sponsoring employers, even the life expectancy of members calibrated by postcode. There are about a thousand different scenarios in the scheme that I have seen. Of course, one of those scenarios is a wipeout. We should not confuse a scenario with a likelihood. With the benefit of hindsight, I think what has happened is that the extreme cases have been taken and split down the middle, whereas if there was more clustering around the middle then we would not have had to put in so much. That is why the amendment looks in a much more focused way at the funding strategy statement. That way, we can take the true costs into account.

On seeing the noble Lord, Lord Davies, again, who is an actuary, I am reminded of an old actuaries’ joke I told in Grand Committee. I am going to repeat it, because it was a small audience then: “We’re all living longer and it’s getting worse”. Some of the assumptions have possibly overcooked life expectancy and undercooked the effects of Covid, and so forth. There is a balance to be struck between overoptimism on one hand and excessive prudence on the other. It is a complicated scheme, but the amendment works out a method by which we can communicate that texture in language that the man in the street can understand, so that taxpayers can be reassured that they are not being overtaxed and members can be reassured that, over the life of the tail liabilities of the whole scheme, they will be paid in full at the right moment. As I said on the previous group, the LGPS is the closest thing we have to a sovereign wealth fund and it is important that we do not take an excessive pessimism bias, as the story of the last 20 years has shown.

[Lord Davies of Brixton (Lab)]

I do not mean to be unkind to the tablers of this amendment, but it is nonsense, in my view. As the noble Lord, Lord Fuller, explained, I can confirm that I am a fellow of the Institute and Faculty of Actuaries. To be honest, this amendment would mean more work for actuaries, on the face of it. Who will do these independent assessments? It is presumably people who know what the technical nature of a pension scheme is—to that extent, maybe I am not against the amendment. It suggests that it should be benchmarked against two things that are irrelevant. The Local Government Pension Scheme is not insured. It is not invested totally in gilt-edged securities. You could calculate those figures, but what do they tell you? Absolutely nothing.

The fundamental problem with this proposal is that it is the administering authority that decides on the contribution rate, not the actuary. It is not the actuary who decides how much prudence should be in the figures. The actuary provides advice and the administering authority decides. If, for whatever reason, the administering authorities feel that they do not have enough control over the situation then that is a matter for them to sort out. It does not require legislation to say that administering authorities should do their job—it is already their job, and they should get on and do it.

Finally, even if an appropriate level of prudence was applied when deciding the contribution rate, that money—which, for the sake of prudence, is paid into the fund—is not lost and has not disappeared. It is still available and will be available for the purposes of the scheme; it will be taken into account the next time there is a valuation. Valuations roll on one after the other. If perchance, because of incorrect advice, a bit too much money is put in initially then it will be there at the next valuation and will be taken into account. Presumably the administering authority, as long as it is doing its job, will adjust the contribution rate appropriately. What we have in the amendment is additional unnecessary bureaucracy and, as far as I can see, the only people who will gain will be the professional advisers.