Pension Schemes Bill

Debate between Lord Fuller and Baroness Altmann

Committee stage
Monday 26th January 2026 Grand Committee

[Baroness Altmann (Non-Afl)]

My Lords, I will speak to all the amendments in this group, which are basically on exactly the same topic. I hope that the Minister understands the spirit in which they are all intended. I also hope that the Committee will be minded to support them. In a way, they follow from my Amendment 108 in the previous group, which sought to get away from the idea that one size fits all in pensions and that a common investment strategy is a recipe for success for either a group of members or all members.

My concern is that the approach to auto-enrolment pensions hitherto was to assume that there is a standard fund that is suitable for all classes of members, which can then be safely invested in by everybody. Of course, it is easiest for providers to have a common investment strategy or a common investment approach in the default fund, but enforced uniformity does not mean that all groups of members are served well.

These amendments seek to anticipate the possibility that some of the large pension providers, either existing ones or, I hope, new ones, will follow an approach in which they have a number of default funds that can be suited to different classes of member on the basis of three or four basic questions that might be relevant to their circumstances. I hope that we get to a position—I know some of the new providers intend to do this—where the pension provider does not look just at your chronological age, for example, and make an assumption about what investments suit you, but asks you whether you intend to stop working at a particular date, whether you have other pension funds and what your state of health is. Just those three basic questions can be critical to the success of an investment strategy for that group of members, but they are all lumped together at the moment.

In addition, it would be helpful to use the Bill not to close down the option of a scheme offering a number of default funds. At the moment, the danger is that everybody thinks that we have to get to £25 billion, even if it is by a range of different approaches. I know that there is an option potentially to aggregate assets, but my amendments seek to ensure that, if the £25 billion number stays in the Bill—the noble Baroness unfortunately seems intent on that being so—the Bill directly allows for a number of default funds to be added up.

I say that because we have seen in recent years the “lifestyling” approach, for example, in which all members are put into one default fund with a lifestyle approach, or a target date fund approach. This has let members down significantly. Although it is not widely reported, I am sure that many other noble Lords have had emails or letters from people coming up to retirement in 2022, who had a pension fund statement that told them they were in a safe fund and the size of the pension they could expect to receive in a few months’ time. By the time they came to, let us say, later in 2022, however, their so-called safe fund had lost up to 30% of its value. Suddenly, they were unable to stop work because they had been put in an approach that was not suitable in the end or did not do exactly what it said on the tin in its results.

If the current approach is that, just because you are 50 or 55, no other questions are asked and you are in a big default fund that says you will be stopping work within the next five to 10 years, and therefore you should not be invested in high-risk assets, which is another name for higher expected return assets, but should be moved into low-risk assets, which is another name for low expected return assets, you are not necessarily being provided with a suitable option. One size fits all does not work if, for example, the member is 55 or even 60, has no intention of stopping work in the foreseeable future, perhaps has a guaranteed defined benefit pension somewhere else that they can rely on, or, at the other end of the scale, is in very poor health and may have to stop work soon, so should be in a different pool. I hope that the Minister will understand that the intention is to anticipate innovation in that regard. I feel that, at the moment, pension companies are not even asking members what their intentions or circumstances are, or even the basic three or four questions.

I declare an interest as an adviser to Cushon, which is looking to introduce an approach of that nature. Other innovative companies also intend to improve member engagement by reaching out to members and trying to put them in segregated pools, rather than just one big pool. The Bill, using just one default fund, or a standard fund, as I prefer to call it, will preclude that kind of development, which could be in members’ interests, could have avoided the catastrophes that we saw with the current one-size-fits-all approach and could encourage providers to explain more clearly what exactly is happening to the members’ money in the investment pools that they are in, which currently does not take place—low risk is not explained, nor is high risk. Therefore, I hope that this principle can be put in the Bill. It is a very minor change, to talk about more than one default fund for a provider, rather than saying “the” default fund. I beg to move.

[Lord Fuller (Con)]

My Lords, I will speak only briefly, because the noble Baroness, Lady Altmann, has put her finger on it. There is a choice here—the choice of the members. If we believe that the members have a say in their own retirement, having saved for it, so that they are stakeholders in that respect, they have a choice, or they are forced into groupthink. It is masterfully explained. The nonsense that gilts are low risk is a fantasy. We heard how the move into gilts resulted because the markets moved into a 22% loss in the underlying asset value.

But the groupthink in the pensions industry is that you have to go to gilts as you approach retirement. As you approach retirement nowadays, you have 30 years to go—30 years of growth. Yes, I do not deny that you need something in gilts and bonds, but there is still a long way to go. Especially in an inflationary period, as we have been through, cash, cash-like and bond/gilt-like investments will not be enough.

Pension Schemes Bill

Debate between Lord Fuller and Baroness Altmann

Committee stage
Wednesday 14th January 2026 Grand Committee

[Lord Fuller (Con)]

My Lords, I knew my love-in with the noble Lord, Lord Davies, could not last, having got on so well with him on our first day in Committee on Monday. I want to come to the defence of my noble friend Lady Stedman-Scott because I do not think that she was talking about a disaster. It is common ground that the Local Government Pension Scheme—by some measure, the fourth-largest or fifth-largest scheme in the world, although it is in 89 separate pots, all of them aggregated—is a strong British success story. There is wide alignment on that on all sides of this Committee.

Having defended my noble friend, I shall part company slightly with some of the points she made—but only in one small regard. My noble friend spoke of a council—we do not know which one it is, but that does not really matter; it is illustrative—whereby the numbers were fixed in time, and that led, as the result of a revaluation, to an exceptionally high contribution rate. I do not want to trespass on the next group of amendments, but I will return to this idea. My noble friend almost came to a point where she wanted to deny—she did not say this, but I took it this way—that we should have some sort of stabilisation. I want to talk for stabilisation in the periods between revaluations in the LGPS.

We have done this in our scheme in Norfolk, so you avoid the peaks and the troughs. There is a stabilisation method whereby you take, if you like, a floating average over a number of things to give stability in the public finances. I accept that, as my noble friend said, if you have these huge differences—and it is not small change; you have to find lots of money—if it is overly variable every three years, that is not conducive to the public good. So I shall speak in favour of stabilisation, which is partly to do with longevity risk, which is referred to in Amendment 16.

The noble Lord, Lord Davies, accurately stated that the LGPS valuation that is currently under review was dated 31 March 2025—10 months ago. I am sure that noble Lords do not need reminding that, on the very next day, the President of the United States announced a whole load of trade barriers and the stock market fell like a stone. You might say that the LGPS got away with it. Had the President made his announcement just one day earlier, those reductions in stock market values would have been crystallised in a much less favourable outcome than we hope will be the case, or are expecting, for this current valuation.

Given the vicissitudes of all of these varied changes and events, it is important that we have attenuation and stabilisation between things. I do not think that my noble friend quite made that point, so I want to make it. The further points made by the noble Lord, Lord Davies, will be covered in our debate on a later group, but I want to talk for stabilisation as a counter, if you will, to the case made by my noble friend Lady Stedman-Scott.

[Baroness Altmann (Non-Afl)]

My Lords, I support Amendments 14 and 15; I thank the noble Baroness, Lady Stedman-Scott, for her explanation of the thinking behind them. I apologise to the noble Lord, Lord Davies, that on this occasion I find it difficult to agree with much of what he said.

I agree that these schemes have been a success. I do not see these amendments as suggesting that there is a massive failure, but I am frightened that we could be about to snatch defeat from the jaws of the victory that these schemes have so far been able to provide. It is vital that there is a cost and sustainability review, as well as a review of the actuarial valuation methodologies. I do not feel that this issue can be swept under the carpet; to some extent, there is, or has been, a desire to do just that.

Excessive prudence and hoarding of excess assets are not, in my opinion, good governance. At least part of the surplus belongs to the employer, who is the council tax payer. This series of amendments, and indeed the whole Bill, need to be approached with the view that defined benefit pension schemes are no longer a problem that needs solving. We had that mindset for so many years that it seems we cannot easily get away from it but, actually, these funds have turned into a national asset, which needs to be stewarded responsibly. It can help to deliver both good pensions and long-term support for the economy, if we just use the opportunity that is presenting itself now.

The LGPS has very much changed position, especially because the needs of local and national economies have also changed. Council tax should be used responsibly and not to keep putting money into pension funds that already have more than they need. The risk of non-payment of these pensions is extremely low anyway, but the risk of council failure has been rising. The same is true for some other employers that are contributing here, such as special schools, academies, care homes and housing associations; a number of authorities and groups that are really important to our national well-being have also been caught up in this situation.

I must thank Steve Simkins of Isio, who has been helping me to understand some of what is going on at the local authority level. I have found his insights extremely valuable. Although the noble Lord, Lord Davies, said that we had the 2013 review under the local authority regulations—I think he quoted LGPS Regulation 62. That is in place but, as the years have gone on, the review and its terms have been used as a smokescreen for super-prudence. I have something of a problem with the argument about stability, because we were not as worried when we thought there were massive deficits in schemes, but we do not seem to want to take even a temporary respite from the ongoing contributions, which actuaries say are not needed, when things have become better.

I support the comments made by the noble Baroness, Lady Stedman-Scott, about the need for these regulations. They are meant, as the noble Lord, Lord Davies, suggested, to help review contributions in the interim, but it is not clear what the definitions on which the review is based mean. The word “desirability” is so vague: desirable to whom? Even the word “stability” can be interpreted differently, depending on whether you are talking about stability immediately or over the long run. Does “long term cost efficiency” include the cost of holding too much money? Is that efficient? We also have “solvency”, of course; on what basis is that measured?

I have enormous sympathy with the noble Lord, Lord Davies, in imploring the Committee to have supreme confidence in the actuarial profession’s conclusions about these funds—I have to declare an interest in that my daughter is an actuary, although I stress not on the pension side. Of course, actuaries are a very professional, well-educated group, but the issue for me is not so much with the wording of the regulations but the mindset that is behind what is done with those valuations. The LGPS, the scheme advisory boards, the MHCLG and even the LGPS officers, advisers and investment managers themselves seem to want to interpret everything in the most negative way, so I think that the noble Baroness has done the Committee a service in raising these issues.

We will talk more about this in the next group, but I urge the Minister to consider carefully, in the context that councils are running out of money and cannot afford basic services, that 20% to 25% of council tax goes on employer pension contributions into schemes that do not, as I say, seem to need the money. Could we be stewarding this national resource, and even the local authority budgets, far better and use the opportunity of the pension success to drive better growth and better local well-being?

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[Baroness Altmann (Non-Afl)]

I just wanted to say that I completely agree with my noble friend. All these amendments are asking for is a level of transparency that we do not currently have. Obviously, if an employer needs a different contribution rate from another one, we would not expect everybody to pay the same rate. But at the moment, I do not think the general public know what the rates are—and I am talking only about rates for local authorities, not for the charities and so on; it is up to them whether they produce that. If you look at Amendment 20A, it is talking about the local authorities specifically rather than the other employers in the scheme.

[Lord Fuller (Con)]

I was coming to a conclusion anyway, so I will not detain your Lordships any further. I have made the points that I wanted to make.

Pension Schemes Bill

Debate between Lord Fuller and Baroness Altmann

Committee stage
Monday 12th January 2026 Grand Committee

[Lord Fuller (Con)]

I am coming to a conclusion. I spent 20 years at the coalface with some of the brightest and smartest professionals from around the world. If we persist with subsections (2) to (8), we will be further in hock to a Treasury that has demonstrated that it does not understand the interplay between revenue and capital, or the underlying principles of a capitalist economy. If it ain’t broke, don’t fix it. Now is not the time to meddle in the LGPS.

[Baroness Altmann (Non-Afl)]

My Lords, I will be brief. I have added my name to Amendments 2, 5 and 6. I support the thrust of these amendments. I agree wholeheartedly with the noble Lord, Lord Davies, that the local government pension schemes have been successful. One reason is that they have been able to take higher risks—in other words, earn higher returns—than many of the traditional private sector pension schemes, which were so constrained and had the problem of LDI.

I have concerns about the cost to taxpayers because the Bill effectively suggests that, by reducing the number of asset pools for local government pension schemes from eight to six, somehow the returns will magically improve and the Government will be able to direct local authority pension schemes into the right place. As we have heard from so many noble Lords, it does not appear to me that the Government are best placed to direct where people invest.

With £402 billion in these schemes at March 2025, with about a quarter of council tax being spent on contributions into them and with so many areas of the economy needing investment, it is right that we expect local authority schemes to be able to support the local—and, potentially, the national—economy. The Government might well be tempted to turn this £400 billion into a sovereign wealth fund, given that taxpayers at the national scale underwrite local authority pension schemes—they do not belong to the PPF; they do not pay a PPF level. If a council goes bust, taxpayers bail it out and the pensions are still paid. I argue that, unless the Government want to do that—

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[Baroness Altmann (Non-Afl)]

My Lords, I added my name to the amendment tabled by the noble Lord, Lord Davies, and I endorse his remarks. There is a clear need for social housing and I would be grateful if the Minister could explain to the Committee the impact of asset pooling and whether it perhaps interferes with funds from local authority pension schemes being invested in social housing.

There is a clear need across the country for improvements in the housing stock. Local areas can know what the need for build-to-rent might be or the need for social housing that is disability friendly or friendly for an ageing population. These areas are not necessarily the focus of some of the private sector housebuilders. Using this resource to improve the lives of local residents—perhaps it would improve the futures of pension scheme members themselves—as well as areas around the country, would be important and I would be grateful to hear the Minister’s views.

I also support Amendment 12, which was so well introduced by the noble Baroness, Lady Bowles. It is essential that the resources in both local and national pension schemes are invested to benefit local and national growth. The diversification benefits of investing in areas much wider than just the local area are clear in terms of using pension fund assets to boost long-term growth, which is an aim the Government rightly have.

I know the Government want to use pension fund assets to benefit Britain, and it seems that local authority pension schemes offer an ideal opportunity for that. If these asset pools can invest more broadly than just the local area, and local authority pension schemes are encouraged to have a diversification spread across the country, I hope that would be a significant improvement and a tangible benefit from the funding that goes into these schemes and from the strong position they have built.

[Lord Fuller (Con)]

My Lords, I want to focus in this group on the nature of local investment. Once again I find myself in broad agreement with the noble Lord, Lord Davies; I am not quite sure whether I should be concerned or he should be.

Clause 2 of the Bill places a duty on LGPS administering authorities to co-operate with strategic authorities, which are defined in the Bill, to

“identify and develop appropriate investment opportunities”

in relation to local investments.

The Bill defines what a local investment is and encourages co-operation, but does not define what constitutes appropriate investment opportunities, how co-operation is to be structured and what the core governance is. Of course, governance leads to covenant strength—in turn to coupon and thus to viability, so this is quite important—and the metrics for assessing local impact. We need further explanation of the duty to co-operate between LGPS authorities, not just within the pool but possibly elsewhere.

If you restrict investment opportunities just to a local area, as other noble Lords have said, it leads you to concentration risk, which is bad for two reasons. First, it is inherently more risky, but it also locks other investors out of the closed shop that then exists between the local pool and its home strategic authority. I have to ask the Minister, who I assume is going to respond here: why would the Government want to make it harder for a northern pension fund to invest in the south—or, probably the other way around, why would they make it difficult for a southern pool to be able to invest in a northern opportunity? As we heard in the previous group, there are provisions in the Bill that will prevent a scheme being involved in any more than one pool.

For “co-operation” I sometimes read “connivance”, and that can never be a good thing when you get a statutory and enforced failure of the separation of duties between those selling investment opportunities and those buying them. Thinking more widely, we know that there is a national infrastructure bank, which is to morph into the National Wealth Fund—I am possibly not the only noble Lord to have been invited to a reception it is holding in our House on 28 January. But the clue is in the name: it is the National Wealth Fund, not the local one. So, where might the order of priority be in the funding and financing here: national or local? When we think about local, we need to have a deep understanding, if we are to start making these investments, of greenfield versus brownfield, and I am concerned about the capacity and capability of funds to manage greenfield development, especially under pooling. That is another perverse consequence of getting too big.

This is where I align myself with the noble Lord, Lord Davies, because during the passage of the Planning and Infrastructure Act, I proposed amendments so that mayoral development corporations could have the financial instruments to go to bodies such as local pension funds and issue debt, so we could build affordable housing or new towns and so on. I divided the House, and noble Lords on the government side defeated us. So, now that the principle of development corporations for the purposes of new towns or affordable housing has been taken off the table, can the noble Lord say how they intend to legislate to enable these local investments with strategic authorities? By their votes they have shown that they are dead against that.

However, there is more, because I am very anxious about the definition of a “responsible investment”, which is in Clause 2(4). Clearly, nobody wants irresponsible investment, but what is responsible? Do we prohibit investments in alcohol, tobacco or sugar, or in supermarkets because they sell the sugar, tobacco and alcohol, or in arms, oil or bookmakers? I have seen it all before. Everybody has an opinion, and some beneficiary members sometimes think they own the scheme. There is much virtue signalling to be had, where long-term returns take a back seat, which results in fewer returns and less business ideas with solid, repeatable cash flows, and the poor member and the taxpayer ultimately suffer from the vanity.

I have seen with my own eyes the letter writing from these people who purport to tell pension committee members and trustees what they should invest in, but where does it end? It ends in the limits of the constellation of investment ideas, so that everybody else ends up chasing the same stocks in a value-destroying bubble, creating systemic risks when everyone does the same thing. It also ends up with the so-called ethical investment funds that disproportionately have gone into ESG investments, putting those ahead of returns, being the lemons in the market. Yet that is what the Bill encourages. There should be no role for ministerial direction in the type of investments. If we want a dynamic economy, you do not create it by wrapping the flow of capital in red tape.

If the Government wish to make infrastructure more investible, whether nationally or locally, they need to create investible opportunities. I know that toll roads are not popular and that a flood defence does not pay rent, but the Government would be better employed creating new asset classes where desirable investments can be matched with long-term returns, rather than herding them into the same old asset classes.

I realise that this is a probing amendment, but I accept that the Government should seek to promote the alignment between pension funds, affordable housing, new towns and other investment opportunities. However, by their actions, they put every obstacle in the way. Can the Minister say what steps will be taken, presumably when we get to Report, to breathe fresh life into the possibility, which was contemplated in the Planning and Infrastructure Act, whereby local bodies may issue local bonds for debt or whatever else, so that we can get the flow of capital to make this country richer, rather than just herding into the same old asset classes that we compete with everybody else for?