Pension Schemes Bill

Lord Thomas of Cwmgiedd Excerpts

Report stage
Monday 23rd March 2026 Lords Chamber

[Baroness Hayman (CB)]

My Lords, when I came into the Chamber today, a Cross-Bench colleague congratulated me on the way in which my amendment has been handled; it is an absolutely perfect example of how the House of Lords should operate. We are all very aware, I think, that sometimes we are not operating at our best at the moment. In this case, an amendment was put forward on a cross-party basis and negotiations went on with the Minister; we managed to thrash out an amendment—and we did not get everything that we wanted, but we certainly got the legislative basis on which guidance could be issued. That guidance has been asked for by trustees and the industry and considered by working groups. I first got involved with the issue and knew that there was a request for clarity some five or six years ago, when we had another Pension Schemes Bill.

I am seriously disappointed that what I thought was a consensus that this was a good way forward has not been accepted across the House. I am particularly distressed that, as I understand, the Liberal Democrat Benches will not be supporting the government amendment today. My understanding up to this morning was that the concerns that existed there related to the fact that my amendment had in some way been watered down and was less tough, putting less into statute and giving more reassurance to those who were concerned about overinvolvement. The Minister set out very clearly that this was not a case of overinvolvement; it is certainly not a case of mandation. I was once told that a Secretary of State in a previous Government said that he did not worry at all about “have regard” amendments, because they could be ignored if there was a basis for so doing.

So I am, as I say, very upset. I will not go through all the arguments as to why this would be valuable—I did it at Second Reading and in Committee and the Minister has done it for me today. I am no expert, and I accept that there are experts in the Chamber, but pension investments are the ultimate long-term investments—the ultimate investments in which long-term, systemic risks should be taken into account. The anxiety that some pension fund trustees had about taking those into account was holding those funds back from acting in the best interests of their pensioners. That, quite simply, was what we were trying to put right in this amendment. The Minister has made a compelling case for this amendment, which she and her officials have taken infinite care over, and I still hope, even at this late stage, that those who are thinking of not supporting it will reconsider and support it strongly, as I do.

[Lord Thomas of Cwmgiedd (CB)]

My Lords, I shall make a few brief remarks in support of the Government. I declare an interest as chairman of the Financial Markets Law Committee, which issued a paper about two years ago now to try to explain the very complicated problems. This would be an easy matter to solve if lawyers were not paid at the extortionate rates at which they are paid, because each bunch of trustees could take their own legal advice, but unfortunately we live in a world where lawyers are grossly over-remunerated, and it is not practicable for trustees of pension schemes to take legal advice. It is therefore necessary to provide some guidance in relation to fiduciary duties.

These are complicated, partly because they have a very ancient history, albeit one that has worked well, and partly because the Law Commission issued a paper some years ago which was not entirely clear. The paper that the Financial Markets Law Committee issued, although it was agreed unanimously by the committee, is not entirely easy to follow. Therefore, what was needed was something that ordinary trustees could look at and be guided by in the exercise of their fiduciary duties. As the Minister has explained, and as my understanding is, the guidance is going to be prepared by an independent group. Having had to see some of those who have been involved, “independent” is a correct description of them. Pension lawyers are tough people and I have no doubt whatever that they will produce independent advice and will not be cowed by any Minister into providing something that does not accord with the law—what they will be doing is giving guidance on the law.

There is one point upon which I disagree with the Minister. She says that the guidance will be authoritative. Yes, in one sense, but not authoritative in the sense in which it is popularly understood. They cannot give advice that changes the law in any way whatever, because that would be ultra vires what they are intending to do, and if they did, one could go to the court and say, “The Secretary of State’s guidance does not represent the law”. Therefore, the argument that this is in some sense changing the law is totally misconceived, maybe because some have not read the amendment very closely. This is simply guidance.

When we look at fiduciary duties and at the 2005 pension regulations, as amended in 2018, there are phrases that are not easy to understand. Therefore, what the Secretary of State is going to do seems to me entirely sensible. She is going to get a group of independent people—and jolly independent they are too—presided over by Sir Robin Knowles, who is fiercely independent, and all they will be doing is trying to explain the law to people, without the people concerned having to pay the fees of lawyers.

I cannot understand how anyone could possibly oppose this. If there is something in the wording that is not quite right, it would be wonderful if someone could say what it is; no doubt it could be corrected in time for Third Reading. To deprive pension trustees of advice and force them into the hands of lawyers is quite wrong. Who pays the fees of the lawyers? The pension funds. This is a good piece of legislation, and we ought to support His Majesty’s Government.

[Lord Hendy (Lab)]

My Lords, what a pleasure it is to follow the noble and learned Lord, Lord Thomas of Cwmgiedd, in supporting the Government’s amendments and Amendment 167 in the name of the noble Baroness, Lady Hayman, and others, which all propose that the Secretary of State should publish statutory guidance for trustees in investing their funds. In Committee, the noble Baroness, Lady Janke, and I proposed an amendment to require regulations to guide trustees’ investment; in particular, so that trustees should avoid incompatibility with international law. My noble friend the Minister was against regulating in a way which would constrain the autonomy of trustees, and we have not pursued that amendment on Report.

The proposal for guidance rather than regulations is an attractive one. My request today is that the factors to which the guidance should have regard should include not just pension law but the international legal obligations of the UK, to ensure that pension scheme investments do not, directly or indirectly, cause or contribute to activities which are inconsistent with the provisions of human rights and international law; otherwise, UK pension schemes, particularly those which are an arm of the UK state, such as the Local Government Pension Scheme, risk involving the UK in breaches of its international obligations.

The UK is obliged not to authorise, explicitly or implicitly, serious breaches of peremptory international norms by other states; nor must it render aid or assistance to any entity involved in serious breaches of such norms by another state. The UK must co-operate with other states and take all reasonably available measures to bring an end to any violations of such norms by another state. This self-evidently applies to the entities involved in the activities of the Israeli Government in Gaza and the West Bank, but, sadly, it applies to many other states too. It also applies to entities in supply chains which involve the UK and other states breaching the minimum labour standards of the International Labour Organization and the Council of Europe through its European Social Charter.

I ask my noble friend the Minister: will she ensure that the guidance proposed encourages pension fund trustees to take into account, among other things, the obligations of international law in making their investment decisions? Pending that guidance, an expression of encouragement from her would be much appreciated.

[Lord Thomas of Cwmgiedd (CB)]

Before the noble Lord sits down, can I ask him a question? The instrument says, “on the law”. We know that English law operates so that there are some obligations that are performable only by His Majesty’s Government, and other obligations that are accorded only into domestic law. He surely is not suggesting that obligations that go beyond domestic law are somehow to be brought within the guidance. If so, that would be a massive change in the law and well beyond anything that this group of people or the Secretary of State were permitted to do.

[Lord Hendy (Lab)]

The answer to that question is complex, but there is one proposition that is not: institutions that constitute an arm of the state are bound by international law. That will apply to the Local Government Pension Scheme and, as I understand it, to other pension schemes.

Pension Schemes Bill

Lord Thomas of Cwmgiedd Excerpts

Committee stage
Monday 23rd February 2026 Grand Committee

[Lord Fuller (Con)]

My Lords, in the opening remarks in this debate, somebody said that there was uncertainty in the fiduciary duty. I can tell noble Lords that there is no uncertainty in the fiduciary duty except from those trying to muddy the waters and sow confusion.

When it comes to investing money, investment managers are trying to juggle several different points. I think that the noble Lord, Lord Pitt-Watson, made that point very well—they are trying to manage long-term versus short-term risks; UK-EU versus US, the rest of the world and emerging markets; equities versus bonds; property versus private equity; and new technology versus established activities. It is hard enough to balance all those competing objectives with different timescales without then having to follow all this stuff. With regard to biodiversity, we cannot measure it as it is today, and if we cannot measure it how on earth are we going to issue the compliance notice contemplated in proposed new Section 41F?

What we have heard today is a lot of “the sky is going to fall in” whataboutery, which denies the simple truth that the people with the most expertise in decarbonisation are those most involved in energy production. They have the experience and capital, and the greatest incentive to change the way they do things. To prevent people investing in companies that are involved in energy production is denialism of the worst sort. I have been a member of the LGPS Scheme Advisory Board since its inception about 13 years ago; my term ends next month. I have seen it all: pressures for ethical investors, saying that you cannot invest in oil, arms or sugar, and you cannot invest in the supermarkets because they sell sugar.

Where does it end? There would be no data centres because they are built on a field that might have had some biodiversity or because they use energy. This overly simplistic approach leads to what the noble Lord, Lord Pitt-Watson, spoke about. It is not responsible investment but irresponsible investment. There is no confusion in my mind between fiduciary duty and risk management, yet these amendments seek to conflate those two totally separate issues into one thing. I will give an example. Through the work we have done in the Local Government Pension Scheme, a Mr Lynk lobbied very strongly on the grounds of fiduciary duty that the LGPS should disinvest from certain Middle East investments. That was wrong, and we fought it because we clarified what fiduciary duty was. I am glad that we did. We cannot afford to have those waters muddied once more.

I am a member of the Norfolk local government pension scheme—a scheme with £6 billion in assets under management and probably more than 120,000 members when you take into account actives, deferreds and pensioners. I often sit on the bus from my home in Brooke going into Norwich. If I go after 9.30 am, just about every single person on that bus is a pensioner. A great majority of those pensioners will be in receipt, simply through the demographics of Norfolk, of a Norfolk County Council pension or will be a beneficiary of one of the other admitted bodies or councils. The LGPS manages for millions of people. The pensions are not large. Those pensioners rely on that modest pension of between £3,000 and £5,000 on average. That is fiduciary duty—ensuring that their pensions are paid in full, on time, for the rest of their natural lives.

What I am seeing here today is virtue signalling. It is diverting away from the absolute need to have the beneficiary at heart. If there are risks through coal production, biodiversity or whatever, let them be taken into account in risk management. They are not fiduciary duty. It is either a wilful or an accidental misunderstanding to conflate risk management with fiduciary duty. When you are a pension trustee or an investment manager, you are working for the beneficiary. That process, that idea, is being lost by the amendments in this group. On that basis, I cannot support any of them.

[Lord Thomas of Cwmgiedd (CB)]

My Lords, I briefly rise in support of the aims of the amendment in the name of the noble Baroness, Lady Hayman. I urge that we get on—as the noble Baronesses, Lady Hayman and Lady Penn, have so eloquently said. Listening to the debate, I do not think that there is any dispute that trustees have a fiduciary duty. No one wants to change that, as I understand it. But the refinements and an understanding of that duty in the modern age are unclear.

In 2014 and 2017, the Law Commission tried to clarify these but did so in a way that ultimately did not help. In 2023, the Financial Markets Law Committee, which I chair—although I am speaking purely in a personal capacity—decided that we ought to look at this issue because it was of such fundamental importance to the operation of the financial markets and to make sure that people understood the implications of fiduciary duties as regards various factors that they could take into account. In a report that was produced two years and a few days ago, the Financial Markets Law Committee, which had assembled a group from right across the pensions industry and those interested, produced a report that was unanimous in the view that it was permissible, as an exercise of fiduciary duties, broadly to take into account sustainability and climate change risk. It has tried to set out in some detail the reasons why it reached that view and why it was important that this was understood.