Pension Schemes Bill

Baroness Altmann Excerpts

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.