Pension Schemes Bill

Baroness Altmann Excerpts

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.