Pension Schemes Bill

Debate between Lord Katz and Lord Davies of Brixton

Committee stage
Wednesday 14th January 2026 Grand Committee

[Lord Davies of Brixton (Lab)]

At the risk of receiving a glare from my Whip, I feel I have something to contribute to this group as well.

I will first make a general point. If noble Lords and noble Baronesses are going to quote specific examples, we need chapter and verse in order to understand what is happening. If we are just given figures, we are meant to absorb and draw some conclusion from them, which is not possible; we need to know chapter and verse of any examples that noble Lords quote so we can analyse and see what is really going on in that particular case. I have to say that my assumption is that, with all the examples we have been given, there is a readily available, understandable situation, and somewhere along the line there has been a failure of understanding.

On Amendment 20, my question for the noble Baroness, which she sort of answered, was: why is this amendment required? I think we were told that it is all too difficult, but of course it is not all too difficult. There is a big example: the London Borough of Kensington and Chelsea, which has a Conservative-controlled council, earlier this year made an interim change in its contribution rate to zero because its investment policy had been so successful. It is worth noting that it has a very successful investment policy and it is one of the smallest local government funds—something to bear in mind during the other debates on the Bill.

There is a question: how often should you undertake a valuation? There is a strong argument for three years because that provides some level of stability to the council’s finances. You have to remember that, over the last year or two years, a council may be paying too much or it may be paying too little, but that is not money down the drain; it either goes into the fund or does not, and it will be available or not available at the end of the three-year period. The money does not disappear if contributions are up, and it will be reflected in the future contributions that that council will pay.

I am also concerned that of course an employer will seek a review when it thinks its contribution is going to go down. I bet it will not seek a review if it thinks its contribution is going to go up, which provides exactly the sort of ratchet effect that the noble Baroness said she wanted to avoid. So it would be perfectly practical to do a valuation every year with the strength of the computers we have available now. It a long time since the day when I had to sit at a large square sheet of paper and do all the figures by hand: you just run the computer and there are the figures. I am sure the consulting firms will be happy to get all the additional fee income, but does it actually produce the advantages that we are told will be achieved through this amendment?

I note the points made by the noble Baroness, Lady Scott of Bybrook. I think it is a very valid point. It is a shame that whatever the local government department is called nowadays has not been involved with the Bill; it could have brought some perspective to where we are.

On Amendment 20A and benchmarks, I draw the attention of the noble Baroness, Lady Altmann, to a regular report from a group whose name I shall not get right—but there is a national group of local government pension schemes. Following each valuation, it produces a detailed report providing all the information she asks for. Again, the information is available. She is asking for this information, when it is already easily available online. On my iPad, I can look up all the information which it is being suggested is being hidden away. The importance of the Local Government Pension Scheme is obvious, and obviously there should be transparency, but the idea being promoted that we do not know what is going on in these funds is gravely unfair to the pension schemes concerned.

[Lord Katz (Lab)]

My Lords, I shall now respond to Amendments 20 and 20A. I am grateful to the noble Viscount, Lord Younger of Leckie, and the noble Baronesses, Lady Stedman-Scott and Lady Altmann, for tabling them. Amendment 20 seeks to revise the existing LGPS regulations to make it easier for employers in the scheme to request interim reviews of contribution rates. I welcome the intention to increase flexibility in how surpluses in the LGPS are treated, but it is crucial for any flexibility to be underpinned by robust safeguards to protect the long-term funding position of those funds. It is important, equally, to make the distinction between how surpluses are treated in the LGPS scheme and in other defined benefit schemes. At the risk of repeating my words on the previous group, within other defined benefit schemes, trustees can choose to release surplus where scheme rules allow. Clauses 9 and 10, which we cannot wait to get to, will increase that flexibility.

In the LGPS, the triennial valuation process already ensures that contribution rates are reviewed every three years and enables withdrawal of surplus through reduced contribution rates where it is prudent to do so. The interim review process is available as an additional mechanism to allow scheme employers, particularly those at risk of exiting the scheme, to seek lower contribution rates between valuations. Interim reviews may take place if it appears likely to the administering authority that the liabilities have changed significantly since the last valuation, if there has been significant change in the ability of employers to meet their obligations or if the employer has requested a review.

I welcome the call from noble Lords opposite to make interim reviews easier to understand and more transparent. I agree that regulations on interim reviews require revision, including on these points. Indeed, the department has already stated this in a letter to administering authorities—that was in March 2025. I understand the point that the noble Baroness, Lady Stedman-Scott, was making about the vicissitudes of the market and other changes that occur. Without wishing to be overly sarcastic, we could posit having reviews on an almost continual basis to try to anticipate market movements, changes in demographics or other external shocks. I am not for a minute suggesting that that was the intention behind the amendment, but it proves the point that, if we are going to break up the cycle of valuation, when and how we do it is a question for further debate. That possibly addresses some of the points that the noble Baroness, Lady Scott of Bybrook, was making as well. It is important that any changes to regulations are properly considered and avoid unforeseen consequences.

Pension Schemes Bill

Debate between Lord Katz and Lord Davies of Brixton

Committee stage
Monday 12th January 2026 Grand Committee

[Lord Katz (Lab)]

I could not have put it better myself. We have to be careful in regarding ESG as fashionable politics, inserting itself into a fashionable investment space. We have to be careful not to throw the baby out with the bathwater and to really appreciate that there are good reasons why certain investments are more popular and investments in other areas are being shunned. There are trends in industry and society as to what products and classes of investment are popular. Sometimes, we can overthink these things.

I am pleased that the noble Viscount, Lord Thurso, popped up because I was just about to address his question about the Bill preventing funds setting targets on local investment, on this theme. I hope this answers his question: they must set a target, but it can be any value that the fund considers appropriate. They retain that element of flexibility, which I hope is helpful.

Regarding Amendment 9, the Government will require some administering authorities to report on their local investments, including the total investment, and on the impact of investments, in their annual reports through guidance. We consider that Amendment 9 would be an unnecessary duplication of a requirement that was already set out in guidance and in regulations. We think that it would not add anything to the Bill, as that regulation is already good practice—it is already there.

Amendment 12, spoken to by noble Baronesses, Lady Bowles and Lady Altmann, seeks to expand the definition of local investments beyond stretching point: it could mean investments for the benefit of persons living or working in any of the administering authorities’ local areas. Our fear here is that the amendment would, in effect, break the definition of local investment, as it could mean any investment in England and Wales. We contend that local investment, as it stands, has a broad definition, as it can refer to investments that have measurable beneficial impact for people living or working in areas local to, or in the region of, the administering authority, or of its pool partner administering authorities. As a consequence, this is broad enough to capture an appropriately wide geographic range while ensuring that there are still benefits for the local area.

To ensure a clear and firm trajectory to consolidation and benefits at scale for the scheme as a whole, along with the assurance I hope I have provided to the noble Lords in discussing these amendments, I respectfully ask my noble friend Lord Davies to withdraw his amendment.

[Lord Davies of Brixton (Lab)]

I thank my noble friend the Minister for his reply. As I made clear, my amendment was not about mandation or compulsion but the ability for local authority funds to invest in ways which are seen as socially beneficial. There was general agreement about the synergy, as I put it, between investing in social housing and the investment needs of local authority funds. The Minister was clear that it should not be a barrier, but, as the regulations are still being discussed, and as the statutory guidance has not been agreed yet, this is a moving feast. I hope that, at some stage, we will be able to get a specific statement on the ability of funds to invest in housing, and in the other ways which have been suggested. I beg leave to withdraw the amendment.