Public Service Pensions and Judicial Offices Bill [HL]

Baroness Altmann Excerpts

Consideration of Commons amendments
Wednesday 9th March 2022 Lords Chamber

[Baroness Sheehan (LD)]

My Lords, I speak at this stage of the Bill because Commons Amendment 54 was tabled so very late on Report in the Commons, after it had already been through this House where it started. How extraordinary it is that an amendment with such potentially wide-ranging impact should have been tabled so that no meaningful scrutiny was possible, with so little notice that the local government pension scheme advisory board was only able to publish its consent after the amendment was passed in the other place.

The concerns the amendment raises are substantial. They go to the heart of who takes the decision on how an individual’s money is invested. Should it be the Government, or should it be the representatives of the people whose money is being invested, which in this case would be the scheme administrators who fulfil the same functions as pension fund trustees? The crux of Amendment 54 is that it is the Government’s money, and the Government should be the final arbiter of the decision. However, when that was tested in 2020, the Supreme Court disagreed and ruled against that contention, asserting that the funds of members of public centre pension schemes belong to the members. It is not public money.

Amendment 54 from the Government seeks in effect to negate that decision. If it were to become law, the Government could issue guidance or directions—and I quote from the explanatory guidance—that

“public sector pension schemes, including the local government pension scheme … may not make investment decisions that conflict with the UK’s foreign and defence policy.”

The crucial decision of who will make the divestment decisions based on ESG and ethical considerations, if Amendment 54 were in place, becomes more blurred.

Some examples may help to illustrate the frictions that could arise. What is happening in Ukraine is uppermost in all our minds. This is not about anti-Semitism; this is about humanitarian concerns. That is why those decisions are taken. What is happening in Ukraine is something we all care about enormously. Many people are outraged by the Russian regime’s callous disregard for innocent civilians who dare to resist their advance. Suppose an LGPS scheme decided to divest from a Russian-owned organisation that is not on the sanctions list—this was the situation not so long ago with Gazprom —the existence of Amendment 54 on the statute book could have deterred that scheme. That, in effect, would be its consequence, given its vague wording and potentially broad application.

Local councils should have a duty to invest ethically, and they should be able to do so unequivocally in alignment with the UN guiding principles on business and human rights. If what is in those principles are not clear to any noble Lords in the Chamber, perhaps they should Google it. It speaks to a very specific example. In areas of the world where states are in breach of international law with clearly documented and verified violations of the human rights of civilian populations, such as is occurring on a regular and sustained basis in the occupied Palestinian territory, local authorities should be able to exercise their ethical judgment and divest from companies that produce and deal in goods from the illegal Israeli settlements in Palestinian territories. However, through Amendment 54, the Government could mandate that if they were to do so, they would be in conflict with the UK’s foreign and defence policy. That cannot be right.

On another issue, fund administrators also have a responsibility to invest in alignment with domestic legislation, such as meeting our net-zero target by 2050, and with international agreements, such as the Glasgow climate accord, agreed at COP 26 just last year. It is not just a responsibility to safeguard environmental and natural assets that is at stake: ultimately, it is the fiduciary duty of fund managers to act in the financial interests of their members.

In 2020, in his annual letter to CEOs, Larry Fink, CEO of BlackRock, the world’s largest assets manager with $10 trillion of assets under management, stated that

“climate risk is investment risk.”

Mark Carney, too, has warned that continued investments in fossil fuels risks write-offs and stranded assets. Local authorities must be able to divest from sources of oil, gas and coal wherever in the world they happen to be, regardless of whether that decision is in alignment with the Government’s foreign and defence policy. Not only must local authorities be able to meet their ESG requirement, they must also be able to fulfil their fiduciary duty. This amendment will hamper their ability to do both, and it should not be included in this Bill.

[Baroness Altmann (Con)]

My Lords, I will address both amendments from the noble Lord, Lord Davies, with whom I so often wholly agree on pension matters; but I am afraid that, in these instances, I find myself in disagreement.

As regards Amendment 48, I would like to make it clear that I support both the amendments that were passed in the Commons. I also believe that public sector workers deserve good pensions. They have good pensions. This stems from the changes that were made in the Hutton review in 2011. I confess that I was astonished at the time that a 25-year settlement seemed to have been agreed in the context of defined benefit pensions, for which costs can change so dramatically in that kind of timeframe. Indeed, employers have found that the costs have significantly increased.

In 2010 or so, the cost of providing a standard public sector pension would have been, perhaps, between 30% and 40% of salary. Subsequent to that, the costs have risen to at least 40% to 50% of salary, if not more than that. So, in effect, there has been a significant pay increase—albeit in deferred pay—for local government workers and public sector workers in general.

The 2016 valuation, based on various assumptions, also does not necessarily mean that the costs at the time would be the ones that are experienced today. Were a valuation to be conducted, say, three years later, four years later or five years later, there would be a significant increase in cost, but by relying wholly on the 2016 valuation and not factoring in the judgments of the courts in terms of the transitional protections agreed, it would appear that the workforce should have increased pension offers, which would subsequently need to be potentially reversed under this economic test.

Part of the problem stems from the expectation—which is wholly unrealistic—that there can be a 25-year guarantee for the kind of defined benefit pensions that are underwritten by taxpayers. That is also an important consideration because local government pension schemes do not belong to the Pension Protection Fund. The benefits promised to the workforce are underwritten by what are called employers, but they are actually taxpayers across the whole country, whether it is council tax payers or ultimately general taxpayers. Given the fiscal situation that we are currently in, and given the changes in the fiscal situation that can accrue, I believe that there is clearly a government interest and a taxpayer interest in the delivery of the benefits of these schemes. It is not just individuals’ money; it belongs to all of us, because we underwrite the full value of all public sector pensions, including the LGPS—which is not, as I say, part of the Pension Protection Fund, so there is no other underwriting available.