Pension Schemes Bill

Baroness Altmann Excerpts

2nd reading
Thursday 18th December 2025 Lords Chamber

[Baroness Altmann (Non-Afl)]

My Lords, it is a pleasure to follow the noble Lord, Lord Vaux, and to take part in this Bill, which is a historic measure proposed by the Government with noble intentions. I need to declare my interests as an adviser to NatWest Cushon and a non-executive director of Capita Pension Solutions. I too look forward to the maiden speech of the noble Baroness, Lady White, who has so much success and experience to offer the House. I thank the Pension Protection Fund, CityUK, Pensions UK, the Institute and Faculty of Actuaries, and the Pensions Action Group for their helpful briefings and information for this speech.

The Bill introduces reforms that aim to improve pension outcomes for members of defined benefit schemes, defined contribution schemes and local government schemes and to increase investment in UK productive assets via the route of consolidation into a few larger asset pools or by ensuring default arrangements for direct pension funds in a way that the Government will mandate. I certainly support the aim of increasing UK investments by UK pension funds and the aim of improving pension outcomes. I warmly welcome many of the Bill’s provisions, but I believe that some of the assumptions underlying these reforms could prove dangerously false and that there is a real risk that there will be a lack of innovation in future as smaller, newer providers drop out or do not even start, while the Government could and should be bolder in encouraging pension schemes to support UK growth than the measures in the Bill provide for.

Using both unlisted and listed investment seems to make far more sense than just requiring a specific exposure to private unlisted assets. I hate to disappoint the noble Lord, Lord Vaux, but I think we are on a similar page when it comes to the Government’s specific proposals. Many of our listed companies are selling at attractive ratings or discounts to their real asset value.

There are many aspects of the Bill that my remarks today could cover, but I will have to try to concentrate on a few and leave the rest for Committee. The aim of increasing UK pension fund support for UK growth is right and long overdue. However, much more could be done with the Bill. According to the Government’s workplace pensions road map, the UK has the second largest pension system in the world, and it is clearly the largest potential source of domestic long-term investment capital. Taxpayers provide £80 billion a year of reliefs to add to individual and employer contributions, but most of that money helps other countries, not ours. If taxpayers were presented with the question, “Would you like £80 billion of your money to build roads and fill potholes in other countries, rather than keeping it here in Britain?”, I am not convinced that they would answer in the positive.

UK pension funds have stopped supporting British companies, large and small. I believe that the future of British business can be successful and I believe in Britain, but it seems like our own pension funds do not. Even the parliamentary pension scheme has about 2.8% of its equity exposure in the UK. The Bill does not address that, as the Government are focusing on DC and local government schemes. One of the proposals that I would like to put to the Government is to see whether there are ways in which, instead of mandating specific areas that the Government want pension funds to invest in—which happen to be, in my view, some of the riskiest areas that they could support—the Government should require, let us say, at least 25% of all new contributions into pension schemes to be put into UK assets, listed or unlisted.

The UK listed markets have become exceptionally undervalued in a global context because our pension funds no longer support our markets. We used to have a reliable source of long-term domestic investment capital. If schemes want taxpayers to put huge sums into their pension funds each year, and if managers and providers wish to continue to receive such sums, is it so unreasonable to ask that they put, as I say, maybe just one-quarter of those contributions into the UK? That could include unlisted assets, listed assets or infrastructure—that would be up to trustees to decide—and if they wanted to put more than 75% overseas, they could go ahead, but should not expect taxpayers to give them money to do so. That seems to me to be not mandation but a proper incentivisation, using the incentive mechanism that we already have of tax relief, which does not have to support Britain at all.

We find ourselves in constrained fiscal circumstances. New Financial recently showed that each bit of the UK pension system has lower allocations to domestic equities as a percentage of assets, as a percentage of their equity allocation and relative to the size of the local market than other countries. What is wrong with Britain? I believe in Britain, and there are reasons to expect that pension schemes—after all, 25% of the pension is tax free—should do far more now to protect and boost our growth. This would not have to wait until 2030, either; it could happen immediately.

If I may, I want to cover the question of relying on consolidation as the answer to driving better returns, and what that might do to the marketplace. Defined contribution workplace schemes and the LGPS are supposed to somehow automatically generate better long-term returns by being bigger. Well, there is a case for that, and some studies would support it, but the figure of £25 billion that must be reached by default funds, and the £10 billion by 2030 that is required, are totally arbitrary. There is no rationale that says that is the right number, yet we are putting it in primary legislation. That is most unwise. What if there is a market crash between now and 2030, for example? What is magic about that number?

Can the Minister say what evidence there is that scale is a reliable future predictor of returns? What consideration have the Government given to the damage to new entrants by favouring these large-scale incumbent funds? The risk of schemes herding and all doing the same thing with such large pools of capital, especially in global passive funds, could distort markets. What consideration has been given to that? What level of confidence is attached to the predictions that the Government have made for improvements in outcomes?

I have heard from new entrants to the market, such as Penfold, which say they are now unable to get new business because they are growing fast but may not reach the £10 billion by 2030—and of course people cannot recommend that employers now invest in them. That company has innovative financial methodologies and is offering a new way of reaching out to pension scheme members, as are Cushon and Smart Pension, which may be further down the line in reaching the target. I have concerns that the Bill will stop new competition and new entrants coming in. An oligopoly is not normally the best way for a market to succeed.

I am particularly puzzled by the explicit exclusion of closed-ended listed companies within the Bill. Part 2 says that none of those investment trusts that have invested in precisely the types of investment that we need, and that the Government want to encourage to boost the UK economy, are excluded from the Bill. I do not understand why the Government would be doing this. I know that they want to encourage long-term asset funds, which are open-ended structures, but there are enormous reasons for and benefits from having closed-ended structures when holding such illiquid assets and long-term growth assets. These are proven companies that have produced very good returns in net asset value yet have shrunk to discounts, due partly to macro factors but also to regulatory overkill, which needs urgently to be reviewed.

Investment in just UK infrastructure and renewables by this investment company sector has exceeded £18 billion. Overall, in the kind of assets that the Government want to encourage—funding solar and wind projects, energy efficiency initiatives, social housing, biotech, property and private equity—these companies have put more than £60 billion to work. But they are now struggling to survive and having to buy back their shares, rather than invest in the kind of growth assets that they could otherwise be selling and managing for pension funds in this country.

I hope that the Minister will help us understand whether the Government are going to reverse this particular exclusion and recognise the benefits of this long-standing, world-leading investment sector. Unquestionably, it can be part of the answer in this scenario. I also urge the Government to clarify what fiduciary duty means. I know that there have been many calls for that to be put into statutory guidance, and I would support this.

Finally, as regards the Pension Protection Fund and the Financial Assistance Scheme, I welcome the flexibility that is being put in to allow the levy to be changed. I welcome the change in the terminal benefits. I welcome the acknowledgment of the injustice of the pre-1997 frozen payments, with the oldest people both in the Pension Protection Fund and particularly in the Financial Assistance Scheme, suffering most. I also welcome the flexibility that will mean that, where a scheme is unsure whether the previous rules would have granted increases on the pre-1997 benefits, it will be assumed that they will. The terminal illness increase, from six to 12 months, is again very welcome. But I would urge the Government to look carefully at how we can recognise the injustice to the pre-1997 members, such as Terry Monk, Alan Marnes, Richard Nicholl and John Benson, who gave years of their lives to achieve better outcomes in the Financial Assistance Scheme, and promote the PPF, which has been such a success. I have also heard from Carillion workers who were in the Civil Service pension scheme and have ended up in the PPF, losing their pre-1997 benefits. This injustice hurts, especially in light of the Government’s generosity to mineworkers and the British Coal Staff Superannuation Scheme, which has been given a 30% to 40% increase to pensions that is effectively publicly funded. I hope that the Government will think again about potentially one-off increases, or some other way of helping the pre-1997 members who lost their benefits.

Pension Schemes Bill

Baroness Altmann Excerpts

Committee stage
Monday 12th January 2026 Grand Committee

[Baroness Altmann (Non-Afl)]

My Lords, I will be brief. I declare my interests as a board adviser to a pension scheme and a non-executive director of a pension administration and consultancy firm.

I support this amendment because, with such wide Henry VIII powers, it is really important to have some framework to hang our discussions and thoughts on or for future people looking at the Bill to understand its intentions. I was tempted to try to amend this amendment to change the word “savers”, which pervades the discussion about the Bill and lots of the background reading about it. Anyone who thinks that someone who is invested for the long term in a pension is a saver has misunderstood what saving is about. It should be “investors”, “members” or “customers” rather than “savers”. That is an important distinction when talking about providing for the long-term future of retirees in this country via a savings or investment mechanism which uses money that is put in to build up funds for the long term.

I would also have added to this list something that I think is really important. I hope, perhaps against hope, that we might be able to improve the excellent measures in the Bill by improving the compensation and payments for pre-1997 accrual by the Pension Protection Fund and the Financial Assistance Scheme, in particular for members who have been denied inflation protection. We ought—within this Bill, I hope—be able to give them extra for the future.

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[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 had basically finished—I just wanted to say that, if we are not going to turn the £400 billion or so into a sovereign wealth fund, it would be preferable if the Government did not try to direct the investments.

[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.

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[Baroness Bowles of Berkhamsted (LD)]

My Lords, I will speak to my Amendment 12 in this group. I hate to disappoint the noble Lord, Lord Davies, but he will have to wait a while before we get to Amendment 10.

As I mentioned earlier, a few years ago I had engagement with local authority pension funds concerning investment opportunities that could be tailored to their own areas. I discovered that they did not want it only in their own areas. They wanted to look at wider areas that included nearby local authorities, in some instances, as well as those further away where the economic responses to recession had fared better. There were some that wished that they had not just invested in some shopping centres in their own area but also in some in London and the south-east that had not lost so much money. That is not what I was trying to involve them in at the time, but these were the examples that came to me.

Those that were in more rural areas wanted some action from the cities. They viewed local investment through a broader lens of meaning things that help localities generally. They wanted to invest in local-sized infrastructure, but not necessarily only in their own areas—especially where some of these things could serve their areas from the outside. There is an example of waste management in Milton Keynes that goes beyond its area. Another example is that of a local waste management facility that recycles all the waste from kitchens. Normally, because there is quite a lot of toxic stuff in it, that waste will go to landfill, but this facility deals with all the nasties and converts it into energy. That facility is not just of interest to the local authority area in which it sits but to other ones too.

There is no suggestion that I wish to compel this in any way; I just want to draw attention to the fact that my personal experience brought this, which I was quite surprised about at the time. There was a focus on saying, “Do good in your own area”, but there was also a desire for the diversity to do good in other areas as well. Maybe you need it under a separate heading, but I just thought I would table this amendment to draw attention to this point and to make sure that, when it comes to regulations, maybe it is in the mind of the Minister and others that there should be some wriggle room around what is defined as local.

[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?

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Moved by

[Baroness Altmann]

8: Clause 2, page 4, line 24, at end insert—
“(d) specifying the percentage of new contributions which must be invested in United Kingdom growth assets.”Member's explanatory statement
This probing amendment would allow investment strategies to require a particular percentage of new contributions, which include added taxpayer reliefs, to be invested in UK assets which could improve the outlook for UK growth and provide a better retirement environment for members in future.

[Baroness Altmann (Non-Afl)]

My Lords, in moving Amendment 8, I will speak also to Amendment 13, in my name. The aim of this amendment is to focus on the flow of money going into these schemes, rather than just the investment of the stock of assets that are already held, which has been the focus so far and is generally the focus of everything else in the Bill. Both are important.

Take, for example, value for money for taxpayers and members. With so much money going in each year—the latest estimates are £10 billion a year of employer contributions alone, let alone the members who are local workers—there seem to be strong reasons why we should expect targets to be set. If we are setting targets for other types of areas of investment, and for the investment of new contributions, we should have a local or national focus, or both.

This is obviously a probing amendment. As I declared at Second Reading, I support all private pension schemes also having an incentive to invest a certain percentage—I have suggested 25%—in UK growth assets. I have described UK growth assets in Amendment 13 as including listed and unlisted equities, infrastructure and property, as we have been discussing, all designed to boost long-term UK growth. I hope that the Minister will be able to explain whether the Government have specific objections to this idea and, if so, why?

If the Government are intent on mandating specific asset pools to invest in certain ways, why would they be reluctant to set certain aims or requirements for the new contributions of what are, in effect, publicly underwritten pension schemes? If we are intent on having mandation, requiring asset pools to invest in certain ways and requiring these funds to invest in them, and if we are not, as we will come to later, looking at ways of permitting employers to either significantly reduce their contributions or have a contribution holiday, would it not be sensible for the Government to look at directing those contributions—which are being paid into a scheme that does not need the money, as far as the actuarial certifications are concerned—to invest to boost long-term growth? I beg to move Amendment 8.

[Lord Palmer of Childs Hill (LD)]

This is an important, basic matter. Directing investment by asset types raises difficulties. If pension funds or individuals knew which assets were going to go up, there would be no problem, but there is no guarantee of that, so, my question to the Minister is: are pension funds primarily long-term investors acting for members or instruments of policy delivery? The answer matters a lot for confidence in Local Government Pension Scheme governance. I am all for productive investment, but it can be a slippery slope if you get it wrong. I wonder whether the Minister can give us some guidance on that.

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The amendments would apply to the investment of new contributions only. It is therefore more meaningful to consider the allocation of the whole portfolio than to look at new contributions in isolation.

[Baroness Altmann (Non-Afl)]

I stress that the amendment is a “may” or “must”; the group does not require a “must”. This was intended to help the Government understand that there are merits in considering the flow and the stock. If there is new contribution flow of a particular size going into an area—this can be part of regulations; it is not required—that could well have a less damaging impact on the market than mandating or aiming. For example, Clause 2(4)(c) talks about “target ranges” for strategic asset allocation to growth assets and income assets. With a fund of this size, when talking about a target range for growth assets or any other assets, we might be moving the markets, because so much money would need to be shifted around. That is much less of an issue with the new contribution flow, but it could still achieve some of the objectives that the Government are seeking to attain.

[Lord Katz (Lab)]

I thank the noble Baroness for that intervention and clarification. I do not want to comment specifically on whether the scale of that investment would be market moving; I do not have the expertise to say that. I want to underline that, ultimately, we think it is for administering authorities and the pools to decide where these investments are made. That is right, because it is the way they fulfil their fiduciary duties. I am happy to look at her contribution again and, if I can add to that explanation, I will happily write to her.

The noble Lord, Lord Palmer of Childs Hill, asked whether pension funds are investments of policy delivery. As I stated earlier, the responsibility for setting investment strategy remains with the funds. The Government are not taking powers to direct asset pools to make or not make investments in specific projects. To be clear, it goes back to the fact that it is for those administering authorities and pools to make those decisions.

[Baroness Altmann (Non-Afl)]

I am so sorry, but this is a really important point. In Clause 2(4), paragraphs (a), (b) and (c)—in particular paragraph (c), to which my amendment seeks to add something—state that we are talking about

“strategic asset allocation or target ranges for growth and income”.

That absolutely sounds as though the Government could—it is “may”, not “must”, so it may not happen—leave the door open to directing investments in the way the Minister says the Government do not wish to do. I would be grateful for some clarification; I do not need it now, as I am happy either for the Minister to write or for us to meet to discuss it.

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[Lord Katz (Lab)]

I am not sure whether I can provide much more clarity than I have done so far, so I would be very happy to write to the noble Baroness to spell that out.

I realise that I have not given the levels of satisfaction and clarity that Members perhaps wanted but, as these are probing amendments, we contend that they would have a minimal impact. On that basis, I ask the noble Baroness to withdraw her amendment.

[Baroness Altmann (Non-Afl)]

I thank the Minister for his answers; I feel for him in his position. I am happy to withdraw the amendment; we can have further interaction at a later stage.

Amendment 8 withdrawn.

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I invite the Government to rethink before we reach new Section 28C, where the discrimination is explicitly elaborated on; if they do not do so, I will return to this matter in more detail. Others who are involved—those in the Mansion House Accord—may wish to reflect on what is being done in their names, as well as the competition implications. I beg to move.

[Baroness Altmann (Non-Afl)]

My Lords, I strongly support the amendment in the name of the noble Baroness, Lady Bowles, and all that she has said so far on the ramifications and the importance of this issue to the Bill—indeed, to the wider UK financial market landscape.

The Government require from the Mansion House Accord investment in unlisted assets, private equity, infrastructure and so on. The Minister stressed in writing that she can confirm that the aim is broadly limited to unlisted assets and consistent with the scope of the Mansion House Accord. If that is the aim of the reserve powers and an overriding objective of this Government, it makes the explicit exclusion later on of this particular asset type—the wrapper, as the noble Baroness, Lady Bowles, called it—even more mystifying.

I have amendments later to the relevant clauses that would specifically make the Bill include these closed-ended investment companies, rather than exclude them, which is more opaque.

As regards the LGPS, using closed-ended listed companies is an ideal way for these funds to invest in local infrastructure where the council and local residents can see the impact. It fits with the Government’s aim too. But by explicitly excluding closed-ended funds and because of the regulatory undermining of this type of fund, which makes up one-third of the FTSE 250 and is an important element of the asset management industry of the City of London and, in particular, of Edinburgh, we are starting to see—I am told that West Yorkshire is an example—that local authorities which have previously invested are disinvesting from these investments.

At the moment, there is a regulatory driver making these closed-ended investment companies appear more expensive than they are. Trying to favour open-ended structures over closed-ended structures, even when the closed-ended structure is the most suitable for holding long-term illiquid investments, makes no sense to me or to many in the industry. Why should investors have to be told that investing in a closed-ended company is costly to them when the costs are paid by the company? They are merely a shareholder. They are not directly charged. With an open-ended fund they are, but not with a closed-ended fund.

Will the Minister explain or write to me to explain—I recognise that there are complexities here that he may not wish or be able to deal with at the moment—why the Bill has excluded these types of investment, reassure the Committee that local authorities will not be directed to exclude these investments and explain why our Government seem to be moving in the opposite direction from other countries, which are apparently now considering launching closed-end investment companies to invest in these kinds of assets?

The FCA designed and authorised the long-term asset funds which the Government seem to favour. They are open-ended structures. One argument that illustrates perfectly the perversity of the Government’s position and the importance of this issue—I make no apology for labouring the point because it is so important to pension scheme investments—is that long-term asset funds will be allowed to hold up to 50% in listed assets. Although the Government want long-term asset funds specifically to promote and guide the investment of long-term pension funds into unlisted assets, their favoured structure—the long-term asset fund, or open-ended funds in general—will have to have listed assets to help manage their liquidity. Closed-ended funds are not constrained in the same way.

Pension Schemes Bill

Baroness Altmann Excerpts

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?

[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.

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If the Government wish to defend the current position, they should do so explicitly by explaining why ever-increasing prudence, trapped surplus and rising employer costs represent good value for taxpayers and a sustainable future for local government. I suggest that these amendments represent a proportionate, reasonable and necessary attempt to restore balance to the system. I hope and expect that the Minister will provide detailed explanations of the points and questions that I have raised, but for the moment, I beg to move.

[Baroness Altmann (Non-Afl)]

My Lords, I support these amendments and I have added my name to Amendments 19 and 20, which deal with issues around surpluses and distribution.

There are important issues in all these areas, in particular when there is a surplus and councils are considering how to spend the money that they have under their control or will be receiving from council tax payers. We have to ask: where is the balance of interest between national and local taxpayers? Who picks up the tab if council tax cannot cover the costs of the local authority and its expenditure needs, whether it is on social care, filling potholes, providing housing or whatever? These are vital national services.

It is important when we are discussing this Bill that we seriously consider these issues, because there is a mindset within local government that seems to ignore the principles of accountability, openness and good governance when it comes to their pension funds. I do not quite understand why, but that seems to be the case. In Amendment 18, when we are talking about the use of the LGPS excess funds, I would like to understand whether the Government object to the idea of having a review or a report into whether and how contributions can be reduced or offset against other employer spending needs. What is the balance between prudence, affordability for the employer and the council tax payer interests—and indeed the national taxpayer interests? National taxpayers underwrite the schemes.

On transparency around actuarial assumptions, as the noble Viscount, Lord Younger, said, there is no proper transparency around how any of the assumptions feed through to the conclusion on contributions. Would the Government object to the administering authorities being required to publish statements showing the actuarial assumptions; comparing them between now and previous valuations; providing justification for the changes and for any prudence level; or explaining the impact and showing that they have considered the impact on the various scheme employers? These employers are struggling in the current environment because there is not enough resource to cover the commitments that these important bodies are being required to make.

I hope that the Minister can help the Committee understand the Government’s view on how these pension schemes should be run in future—including, perhaps, a mindset change away from how we have been thinking about them up to now.

[Lord Davies of Brixton (Lab)]

There is a phrase, “esprit d’escalier”—is that how you say it?—for when you are walking down the stairs and you suddenly think of the thing you wish you had said in a previous discussion. Well, this group of amendments provides an ideal opportunity to avoid that very problem.

I do not want to delay the Grand Committee unnecessarily but I feel forced to say something. In essence, these amendments are fundamentally misconceived. I do not object to these questions being asked, but have the two previous speakers ever looked at a Local Government Pension Scheme valuation report? All the information for which they are asking and more is set out in those reports, in accordance with the professional standard that all actuaries must meet.

It is worth saying that that professional standard is set not by actuaries but by the Financial Reporting Council, which sets technical standards for the actuarial profession. The profession looks after professional standards but technical standards, and specifically what should appear in a valuation report, are set by the Financial Reporting Council, which is not part of the actuarial profession. Obviously, there is big actuarial input, but the final decision is made by the council, and all the information called for by the noble Viscount and the noble Baroness is in those reports. Of course, there may be cases where it does not appear in those reports, in which case that is a case of technical malpractice and the Financial Reporting Council should be told.

[Baroness Altmann (Non-Afl)]

I apologise for intervening, but I feel that there is a bit of misdescription here. Yes, it is true that Regulation 64, for example, includes this information, but the FRC does not have the authority to insist on these issues being fed through. Indeed, there is non-statutory guidance that seems to override all this. For example, it says that you should not consider changes in contribution rates on the basis of liabilities that have changed due to market changes, so the interest rate environment, which has changed so fundamentally, is supposed not to feed through to the conclusions on contribution rates. That is part of this mindset which, I feel, it is so important for us to try to adjust as we go forward, given the fundamental changes that have happened.

[Lord Davies of Brixton (Lab)]

I apologise, but I do not understand what the noble Baroness is saying. Actuaries have to comply with these professional standards; any valuation report they produce has to meet them—that is not a question for debate. If a report does not meet those standards, it should be pursued on its merits. To claim that this information is not available is simply untrue: it is there in the valuation reports. I always have problems with the word “transparency”, because to me it looks like something you can see through and you cannot see it, but I take it to mean that a full explanation of the degree of prudence, a wide evaluation of the assumptions chosen, what effect different assumptions would have and the outcome in terms of the contribution rate all have to be set out. They are publicly available.

The second point is that actuaries do not decide on the valuation assumptions; the management committee decides, on actuarial advice, what the assumptions should be. The local, democratically elected representatives take the decisions, including about what the contribution rate should be. We are currently in an odd state where lots of information on the situation is becoming available, but that is because we are at the end of a three-year cycle of valuations. By the end of this year, all these issues will have been resolved. Not everyone will be pleased; it is entirely possible that some admitted bodies will find that their contributions go up. Perhaps they had significant changes in their workforce—who knows? But the mere fact that some contribution rates go up while the overall move is a reduction does not in itself mean that the system is broken.

I find it difficult to understand what exactly these amendments intend to achieve. The information is available, the decisions are made by the local government bodies involved, and they take the decisions based on their democratic responsibility. What more could we want?

[Baroness Altmann (Non-Afl)]

Perhaps I could assist the Committee. These amendments are asking for a publicly available report that clarifies and sets out all this information on a basis that council tax payers, for example, whose money is being used, can see with clarity: it is provided to them. With all due respect, they will not read the actuarial report, but having a properly set-out review that explains all this clearly, in language that people can understand, would have huge value.

[Viscount Thurso (LD)]

My Lords, I am sure that my noble friend on the Front Bench will give our view on the generality of these amendments. I have one small question that I want to put to the noble Viscount in respect of Amendment 16.

Broadly, I am in favour of clarity of investment function, and I suggest that any well-run fund has a very clear statement of its objectives that everybody can see. My question is simply about the use of the phrase “risk elimination” in subsection 3(a) of the proposed new clause. This goes to the heart of one of the problems of discussing surpluses and everything else: it seems to me that anybody making investments who is seeking to eliminate risk is in the wrong industry. They really ought to be doing something else, because you cannot have any reward without risk. I humbly suggest that it should refer to “risk appetite”. It is perfectly correct for any set of investing trustees or any fund to have clarity as to the risk appetite that they wish to have to achieve the investment objectives that their pension fund has; I just question the use of the word “elimination”.

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I close my remarks by commenting briefly on Amendment 20A in the name of the noble Baroness, Lady Altmann, which aims to shine a light on the level, justification and affordability of LGPS employer contributions, enabling comparisons across schemes and councils and making how pension costs relate to council tax income clearer to the public. This amendment is welcome and speaks powerfully to some of the points that we made in our speeches on the previous group. I know that the noble Baroness will make a powerful and authoritative case for her amendment; we on these Benches will listen closely to how the Minister responds. With that, I beg to move.

[Baroness Altmann (Non-Afl)]

My Lords, in speaking to my Amendment 20A, I shall also speak in support of Amendment 20, to which I have added my name. I thank the noble Baroness, Lady Stedman-Scott, for both her clear exposition and her support for my amendment.

Amendment 20A seeks to benchmark the Local Government Pension Scheme’s employer contributions rather than just the liabilities. It asks the LGPS to

“report publicly the employer contribution rates being paid by each scheme and establish a benchmark for employer contribution rates”

as a proportion of, for example, salary. It also asks the LGPS to

“collect and publish data from each local authority council employer in the scheme, to report the percentage of council tax receipts that are represented by employer pension contributions”.

I have struggled long and hard to compile some information that would give us a picture, across local authorities, of what proportion of council tax receipts is spent on pension contributions in each area. I have to say that I ended up coming back to a national average, because that was the only figure that I could readily find.

I thank Steve Simkins at Isio, who told me about a council where the actuarial valuation implied an employer contribution of zero but the council was asking for a 15% contribution anyway. Unless you have a benchmark for this kind of information, you would not know it. Before the noble Lord, Lord Davies, asks me about this, let me say that I will have to seek permission to let him know which council it is; if I am able to do so, I will, of course.

The Minister and the noble Lord, Lord Davies, have suggested that those of us who are laying these amendments are somehow concerned about the surpluses. I do not believe that there is concern about the surpluses; the concern is around how the surpluses are dealt with. We have concerns that there have been significant overpayments, amid pressure on both local and national taxpayers, while urgent local and national expenditure has had to be either cut or not made, and while councils remain underfunded and government borrowing keeps rising. Those are the consequences of not allowing the surpluses to feed through to the expenditure on the employer contributions—and that, I think, is the concern that this suite of amendments is trying to address.

When we are talking about these pension schemes, we are talking about a funding level that is an estimate. The assets make no allowance for future returns, for example, even though they are invested to earn future returns, as would be expected of any long-term investment. However, the liabilities fully build in assumptions— expectations—of what the future liabilities will be over the very long term. The money for the contributions is required now and has to be paid today, but a one-year or two-year cessation of extra contributions surely does not undermine a scheme that is already overfunded for the next 50 years, never mind the next two years. And of course it can improve local well-being.

I hope that the Minister will consider accepting these amendments on the basis on which they are proposed, which is in seeking not to cause problems but to help both local and national funding. Yes, it is true that local authority employers pay varying percentages of salary into the different schemes, but it would help the public and councillors themselves to have some kind of comparison of the rates that they are paying and of the funding level of the scheme and the implications that that might have for future funding, rather than to continue with the current range. I am told that councils such as Avon pay rates of between 15% and 40%, depending on the employer, into a scheme that, based on all conventional funding measures, does not require that money at this time.

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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.