Pension Schemes Bill

Debate between Lord Katz and Lord Palmer of Childs Hill

Committee stage
Wednesday 14th January 2026 Grand Committee

[Lord Palmer of Childs Hill (LD)]

My Lords, I must first remind myself to declare that I am a member of the Local Government Pension Scheme: I could not fail to be, having been 28 years on the London Borough of Barnet Council, but I tend to forget about it because it is quite a while ago. A payment does come monthly into my bank account, so I must declare that I am a recipient. I also served on the pensions committee of the London Borough of Barnet, so I have some knowledge of the things that the noble Lord, Lord Davies, has been very eloquent about.

These amendments propose reviews of the Local Government Pension Scheme, and I think we have to get back to exactly what these amendments are asking for, which is sustainability and actuarial practice. We on my Benches support both, in principle. The Local Government Pension Scheme is a long-term, open scheme with unique characteristics, and pressures on admitted bodies, including housing associations, merit careful examination.

The noble Lord, Lord Davies, spoke eloquently about the profession of actuaries. I have always found that actuaries do not have a unified view. There are different actuaries and different views, and as a chartered accountant I have always thought they were impressively prudent with what they said the funds needed to be protected against.

Similarly, actuarial practices such as desirability, stability and solvency are not always applied consistently, despite our applause for actuaries as a profession. Greater clarity would help employers plan and would reduce disputes. Reviews, which is what these amendments ask for, are not admissions of failure; they are tools of good governance. We on these Benches therefore see these amendments as constructive and not critical.

The noble Lord, Lord Fuller, spoke very eloquently about stabilisation and the noble Baroness, Lady Altmann, talked about cost and stabilisation review. Excess prudence, or super-prudence, is not sensible, and it is so easy to be prudent as the easy way out. There is an argument for temporary respite. All these come into the question of review, which is what these two amendments ask for. Our question is whether the Government can accept the value of structured, evidence-based review in strengthening confidence in the Local Government Pension Scheme. Review is not a question of failure; it is a question of prudence, which I would have thought actuaries would be in favour of.

[Lord Katz (Lab)]

My Lords, this has been another interesting and wide-ranging debate, and I am sorry to see that the accord that we had on Monday— the horseshoe accord, I am going to call it—between my noble friend Lord Davies and the noble Lord, Lord Fuller, has broken down. Sadly, in my experience these things do not last that long.

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[Lord Palmer of Childs Hill (LD)]

My Lords, I support these amendments because I believe that transparency is good. I will need to address some of the things that the noble Lord, Lord Davies, said. He is right from an actuarial point of view, obviously. He said the decision is made by the council; in fact, it is made by the management committee of that council. The management committee of most councils will consist of councillors who are neither actuaries nor particularly great financial wizards. What happens in practice is that those people on the council’s management committee that is deciding take the advice of its pensions advisers, stockbrokers and actuaries. It happens on that basis. Do they understand it? My general view is that they are swayed by the people who make the arguments to that committee.

So this group of amendments addresses transparency, benchmarking and surplus. To most people, these are technical matters and ones on which the noble Lord, Lord Davies, speaks with great expertise from an actuarial point of view. But the impact on employer contributions and public services is real. Where valuations are materially more prudent than market benchmarks, we need to understand why.

My noble friend Lord Thurso talked about risk appetite. Most local authority pension committees will not have a great deal of appetite for risk. Their idea is that they are custodians of their employees’ pensions and they will naturally fall on the opposite side of taking risk. That is probably quite right. These amendments are a step in the right direction: they are a clearer explanation of assumptions and benchmarks, which strengthens the local government pension schemes by improving accountability and understanding.

Our question is whether the Government and the Minister agree that transparency is a safeguard and not a threat. This is what the amendments talk about—transparency. We need to make it as transparent to the management committees of these pension funds as it can be. That is what these amendments try to do: they would bring this on to a more generalised basis, not just picking the ones that do well in the Orkneys or wherever, but ones that maybe need guidance. Therefore, these Benches support these amendments, and I hope that they see some light at the end of the tunnel.

[Lord Katz (Lab)]

My Lords, this has been another interesting and wide-ranging debate. I am pleased to see that the horseshoe accord has, to some small measure, broken out again. I must say that I am not as pleased to see the conversion—maybe I am being unfair in characterising it as a Damascene conversion—of the noble Lord, Lord Fuller, and other Members opposite into the prudence of having well-funded local government to provide local services, after the underfunding of local authorities for a fair amount of time. Would that that sentiment had been shown by the Benches opposite when they were on our side of the Committee, but we are where we are.

These amendments show a clear desire to provide greater transparency in the triennial valuation and contributions rate-setting process. I agree it is important that all scheme employers understand how their contribution rates have been set, and members need to have confidence in the long-term sustainability of the fund.

These amendments also show a keen interest in the funding level of the Local Government Pension Scheme and the balance that administering authorities must strike between the long-term sustainability of the fund and affordability to its employers. As a public sector scheme, it is right that we are mindful of the costs to the taxpayer of funding the scheme.

I will address up front why the surplus extraction measures in Clauses 9 and 10 do not apply to the LGPS, to avoid confusion. The LGPS already has a triennial valuation process where contribution rates for employers are set. This is effectively a point where surplus extraction can take place, as this is where contribution rates can be reduced in response to an improvement in the funding level. As we will come on to later, there is also an interim contribution review process for employers who find themselves in difficulty. Therefore, an additional surplus extraction process is not required.

Furthermore, I urge caution in viewing surpluses in the LGPS as a potential windfall or as a means of managing broader revenue pressures for scheme employers. As in all defined benefit schemes, surpluses are maintained to absorb future shocks, manage demographic risk and ensure that promises made to members are kept. Poor decision-making can now lead to higher costs for future generations of taxpayers.

For context, the 2025 valuation will conclude in a few weeks, as we have discussed, with employer contribution rates set for April 2026 onwards. Following this, the Government Actuary’s Department, under Section 13 of the Public Service Pensions Act 2013, will undertake a review for the Secretary of State of all fund valuations, on whether compliance, consistency, solvency and long-term cost efficiency in the scheme has been achieved. Under usual timeframes, the report will be published in mid-2027.

Although I appreciate that the Committee is concerned about rising surpluses in the scheme, it surely cannot be right that we make amendments that would have a material impact on future valuations without having a full review of the outcomes of the 2025 valuation. It is anticipated that there will be reductions in contribution rates for many employers from April, and we need to take account of how the current system has coped with the significant changes in market conditions since that 2022 valuation—we discussed that on both this and the previous group—before making changes to the valuation process.

The LGPS is a locally administered and managed scheme. It is administering authorities that are responsible for managing their surpluses through employer contribution rate changes, and for working with their actuaries to set appropriate assumptions as part of the valuation. Authorities are required under government regulations to provide valuation reports to employers to support them in their longer-term financial planning. So we must consider whether it is right for the Government to exert a more significant level of influence over the setting of contribution rates through these amendments, and whether this is compatible with local accountability.

It is right, in a locally managed scheme, that funds are able to set their own approaches to stability and prudence, reflecting both the needs of employers in understanding their medium-term financial obligations and the different risk profiles of their investments. The balance of these is key to delivering the intergenerational fairness mentioned by noble Lords opposite, particularly the noble Viscount, Lord Younger—and indeed we all want to see that.

On transparency, revised statutory guidance on the funding strategy statement, which all LGPS funds must publish, was issued by the scheme advisory board on behalf of MHCLG in January 2025. Under this guidance, administering authorities should consult all employers in the fund on their funding strategy statement, which should outline how administering authorities will manage surpluses and deficits, outline the approach to contribution rate stability, and summarise the main actuarial assumptions used at the valuation.

Amendment 16 would require the Secretary of State to set a statutory funding objective for LGPS funds, including considerations for administering authorities, setting their funding strategy and contribution rates. There is already detailed guidance on how funds should manage surpluses and deficits in their funding strategy, but, as locally managed schemes, it should be for administering authorities to consider how to strike the right balance in setting the contribution rates, with appropriate considerations of prudence and the long-term sustainability of the scheme and contributions. Furthermore, a funding objective would still require a degree of interpretation and so would not provide the clarity that the noble Lord seeks to achieve with his amendment.

In 2020, the Supreme Court found that LGPS money is not, in fact, public money, but that it belongs to its members, which further justifies why a statutory funding objective is not appropriate for the scheme.

Amendment 17 would require fund valuations to be benchmarked against insurer and gilt-based pricing, with a report laid before the relevant local authority. The triennial valuation and contribution rates-setting process is already a robust and collaborative process between administering authorities, actuaries and employers. Many authorities already follow best practice in consulting scheme employers alongside the contribution rate-setting process. This gives employers the opportunity to challenge contribution rates and consider whether they are sufficiently stable, or whether excessive prudence is built in.

Statutory guidance already sets out that funds should publish the actuarial assumptions used as part of the funding strategy statement. The noble Baroness, Lady Altmann, referenced the role of the Financial Reporting Council in the valuation. The valuation reports, which are publicly available, will include Financial Reporting Council compliance statements that technical actuarial standards have been complied with. In addition, I have already raised the Section 13 report by the GAD, which reviews the fund-level actuarial valuations. As part of the review into the 2022 valuation report, for example, when assessing consistency, there was a review of assumptions, including the discount rate.

Finally, this amendment points to a perceived excessive risk aversion undertaken by the LGPS. This is not an accurate characterisation. In fact, around three-quarters of LGPS assets are invested in return-seeking assets, vastly outweighing the equivalent figures in private schemes, which are heavily geared towards matching assets.

Amendment 18 would require administering authorities to publish and justify their approach to the treatment of surpluses over 120%. First, we must consider if this is the level that we would wish to set in the context of the LGPS. Elsewhere in defined benefit schemes, the Government are considering the funding threshold for surplus release, and there has already been consideration of what this would be. But we must remember that the valuation process already provides a route to return surplus to employers, which allows for changes every three years, whether or not a threshold—whatever it is—has been met.

Furthermore, each valuation is prepared on a local basis, meaning that the funding level will depend on the discount rate set. The discount rate converts the value of future benefits to a current value so it can be compared to the current value of assets; it is used to determine the employer contribution rate required to pay future benefits. It is based on the assumed future returns of the individual fund’s investments, taking into account the portfolio of assets held by the fund, the demographic profile of its members and its attitudes to risk. That means that a funding level of 120% in one fund will simply not be comparable to that of another if the discount rates applied are significantly different.

I think that the Committee will surely agree that the purpose of a buffer is to provide a surplus in well-funded times and guard against a fall into deficit in more challenging times. As a locally managed scheme, it is for the funds, not for the Government, to decide what the right level of surplus is. Introducing these additional reviews and requirements would risk undermining the valuation process and the locally managed nature of the scheme.

On Amendment 19, we had an interesting discussion on transparency—certainly transparency and accessibility is something that we should all seek. I appreciated the discussion between my noble friend Lord Davies and the noble Baronesses, Lady Altmann and Lady Noakes, on the accessibility of the actuarial statements. Maybe I would say this, but I thought that my noble friend put up a good defence of the professional standards that actuarial firms set themselves with regard to matters of accessibility.

I appreciate that the intent of Amendment 19 is to increase the transparency of actuarial valuations for all scheme employers and for members of the public. In addition to the requirements that I have already mentioned, regulations also require the administering authority to publish and send copies of any valuation, report or certificate made under Regulation 62, or Regulation 64, to all employers. I do not recognise that as limited transparency, but I concede that there is scope for greater visibility—and that is something that we should always seek to pursue. While there is scope to look at whether these publications could be made easier to understand for employers, that should be considered in the round—I suggest following the conclusion of the 2025 valuation.

The noble Viscount, Lord Younger, asked me to comment on his example of valuations increasing despite surpluses, and I would say that there is a robust valuation process in place into which employers feed. We must wait for completion of the scheme valuation and its formal result—but if this is the case as set out by the noble Viscount, the Government Actuary’s Department will review the results in the valuation under regulations in Section 13.

The noble Lord, Lord Fuller, asked about funds not using a discount rate that is more prudent than a gilt basis. I have already talked about the wider inaccurate characterisation of excessive risk aversion, but at this point I add that the LGPS is a funded scheme with diversified assets and its discount rates are set by fund actuaries on a scheme-specific, prudent basis that reflects long-term expected returns. The valuations are reviewed nationally by the GAD on compliance, solvency and long-term cost efficiency. Without the results of the 2025 valuation or the Section 13 review, we cannot say for certain what the current approach is, taken across all funds.

Pension Schemes Bill

Debate between Lord Katz and Lord Palmer of Childs Hill

Committee stage
Monday 12th January 2026 Grand Committee

[Lord Palmer of Childs Hill (LD)]

I simply ask the Minister to explain how local accountability will be preserved, how fiduciary duties will be protected in practice and why so much of this is not in the Bill.

[Lord in Waiting/Government Whip (Lord Katz) (Lab)]

My Lords, I am grateful to noble Lords for these amendments in the names of the noble Viscount, Lord Younger, and the noble Baronesses, Lady Stedman-Scott, Lady Bowles of Berkhamsted and Lady Altmann. Before I proceed, as we have had a bout of putting things on the record and making declarations, I should say that I served for a mercifully short time as a councillor in the London Borough of Camden from 2010 to 2014 and, as a consequence, am a member of that council’s pension scheme, but I think that has pretty scant bearing on our discussions this afternoon.

On Amendments 2 and 6, I recognise the intention to preserve the independence of the Local Government Pension Scheme administering authorities and to reduce the burden of regulation on their function. I will say now, so that I do not forget, that I appreciate that the noble Viscount, Lord Younger, asked a great deal of questions on amendments not just in this group but in groups to come. It was very helpful to have his explanation about degrouping; we are very happy to debate the Bill in the way the Committee sees best. I also put on record the welcome recognition by many Members who spoke on this group, particularly the noble Lords, Lord Davies and Lord Fuller—although in slightly different ways—of the importance and success of the LGPS. It is worth being clear that the Government are determined to make sure that success continues.

Jobs Market

Debate between Lord Katz and Lord Palmer of Childs Hill

Wednesday 23rd July 2025 Lords Chamber

[Lord Katz (Lab)]

My noble friend makes a very strong point. He will be aware that in the recently published immigration White Paper, the Home Office outlined the steps it is taking to reduce net migration while supporting the labour market across all sectors. On the part of the DWP, my department will play a key part in this work, sitting, as a member of the new labour market evidence group, alongside the Migration Advisory Committee, the Industrial Strategy Advisory Council, Skills England and the relevant devolved skills bodies. I am sure that that will address the concern my noble friend has outlined.

[Lord Palmer of Childs Hill (LD)]

My Lords, what assessment have the Government made of how far the increase in employers’ NICs in April 2025 led to a further switch-out of regular employment into contract work or self-employment as a means of employers avoiding employers’ NICs? There is some evidence that this has been happening, and it is bad news for the public purse, as contractors pay a lot less in NICs and individual workers miss out on all the standard employment rights, including workplace pensions, paid holidays, sick pay et cetera.

[Lord Katz (Lab)]

The noble Lord will be aware that in the Employment Rights Bill we are undertaking a sector-wide, labour force-wide reassessment and review of employment status that will take into account employment, freelance, self-employment and contracted status. I understand the question. Going back to the original point of the noble Lord’s question, we had to take some very difficult decisions as a Government upon coming into office and finding the £22 billion black hole legacy.

Employment Rights Bill

Debate between Lord Katz and Lord Palmer of Childs Hill

Report stage
Wednesday 16th July 2025 Lords Chamber

[Lord Katz (Lab)]

To be clear, if there is a recognised trade union or you are a member of a trade union then you can take a trade union representative, but you also have the right to be accompanied by a workmate. If you are a member of a trade union, you do not need to take that trade union representative along; you could have a workmate come along. If responsible employers want to have more flexibility, they can write this into their terms and conditions. There is nothing to stop people doing that. That is why I suggested, to again use the phrase, that the solution to such a problem is not something we really need to respond to in the legislation because it might create unintended consequences and, in terms of the amendment from the noble Lord, Lord Palmer of Childs Hill, unfair administrative burdens on employers. Therefore, I ask the noble Lord to withdraw Amendment 98.

[Lord Palmer of Childs Hill (LD)]

My Lords, we have had some very interesting comments here from various people. I remind noble Lords that all we are saying is that people should have a choice. They could have a trade union representative, fine, but 77.7% of people are in firms that do not have a trade union. But if there was a trade union, that is fine.

The alternative is that, as the noble Baroness, Lady O’Grady, said, you could have a fellow worker. But the point of the amendment is that we are saying that the workers need to have a trained person to represent them. It can be a trade unionist—that is fine—but, if it is not, it will be like when a person goes to the solicitor at the end of the road and gets him to represent them on a complicated issue: he is the wrong person to represent them on that issue. You have to have someone who has some training. The trade unionists have the training, but they do not represent everybody. We are saying that the person who is seeking help should have someone who is trained.

I thank the noble Baroness, Lady Fox, for what she said; I gather, from having spoken to her, that she will support the amendment in my name. Bearing in mind the lateness of the hour, I would like to test the feelings of the House.

United Kingdom Jobs Market

Debate between Lord Katz and Lord Palmer of Childs Hill

Wednesday 11th June 2025 Lords Chamber

[Lord Katz (Lab)]

I thank the noble Lord for his question. He, like me, will be waiting with bated breath for the publication of the Government’s industrial strategy White Paper, which will set out the Government’s approach to investing in eight priority sectors—those deemed most likely to drive UK economic growth. It will not surprise the noble Lord or, indeed, the House that digital technologies, including artificial intelligence, will be one of the sectors right at the heart of the Government’s industrial strategy. As I have set out, we have a youth guarantee to deliver a record spend for young people. Ensuring they can take advantage of the opportunities of AI will be at the heart of making that work.

[Lord Palmer of Childs Hill (LD)]

My Lords, could the Minister actually answer the Question, which is about the assessment of jobs that will be available? He has spoken about various things that are in flow, but could he give some indication as to how the Government see the various sectors of our society and the jobs that will be needed? There is always a feeling that we are waiting for some report, but there is no assessment of which sectors are in need of employees and workforce. Can the Minister indicate which sectors of society will be looked at for future employment?

[Lord Katz (Lab)]

I thank the noble Lord for his question. I am afraid I will repeat myself: a great deal of it will be delivered through the industrial strategy White Paper. We are looking at the sectors that will lead to the future economic growth of this country—advanced manufacturing, clean energy, the creative industries, digital and technologies, defence, financial services, life sciences, and professional business services. As we heard from the noble Lord, Lord Forsyth, on the previous Question, financial services will be a key part of our economic growth. These are the areas in which the jobs will come. It is our role as a Government to make sure everybody can access quality jobs in these economic sectors and that is what we will do.

Employment Rights Bill

Debate between Lord Katz and Lord Palmer of Childs Hill

Committee stage
Tuesday 13th May 2025 Lords Chamber

[Lord Katz (Lab)]

It will not come as a surprise to my noble friend that we cannot accept the amendment in front of us today. However, I am very happy to work with him to ensure that your Lordships’ House can consider this most important issue again on Report. So I respectfully ask him not to move this amendment and ask that the noble Lord withdraws his amendment.

[Lord Palmer of Childs Hill (LD)]

I feel humbled by this debate. It started off for me with the noble Lord, Lord Watson of Invergowrie, and the right reverend Prelate and it went on in the same vein, right across the House: the feeling that there was this Bill, the Employment Rights Bill, and that we recognise that within employment rights there are carers who have been ignored and need to be paid for what they are doing, for people and for the system that they underwrite.

The Government have not really replied in positive enough terms on this, but we will come back to this on Report with specific amendments. By that time, I hope that Government Ministers will go back to their colleagues in the other place and say that across the House, from all parts of this House, there was a feeling that unpaid carers need to be recognised in the Employment Rights Bill, and that kinship carers, who have not been recognised before, need to be recognised. We hope the Government have heard this and we look forward to a positive response by Report. I beg leave to withdraw my amendment.