Pension Schemes Bill

Viscount Thurso Excerpts

Committee stage
Monday 12th January 2026 Grand Committee

The economy runs on incentives, but in this Bill the Government are disincentivising individuals to save in pensions and investments. Not every provision in the Bill is wrong, and there are plenty to be welcomed, but on so many fronts it misses the target. I congratulate my noble friend on attempting to establish a purpose clause to give clarity, coherence and, yes, confidence to a population that is sceptical that doing the right thing is for them.

[Viscount Thurso (LD)]

My Lords, I am not entirely certain that I am wholly in favour of the concept of a clause at the beginning of a Bill that sets out its purpose in the way that the noble Viscount has set down, but I appreciate the opportunity to speak to one of the points that it makes.

First, I am not sure whether it is a declarable interest but I will declare it anyway: I am a trustee of the Parliamentary Contributory Pension Fund, for which I do not get remunerated—none of us does. As far as I am aware, nothing in the Bill affects that scheme, and therefore I am declaring it just in case. Secondly, I apologise for not having been here at Second Reading. I had to attend something extraordinarily rare: a hospital appointment in Inverness. I am afraid that not even I could get from Inverness to here in the required time for the Second Reading. I apologise for that, but I have read the Second Reading debate and was very taken by what was said.

The specific point that I want to come to is the point that the noble Viscount makes in proposed new subsection (1)(h) and his reference to

“responsible and innovative use of pension scheme surplus”.

What does he mean by an innovative use of the surplus? When the Minister comes to respond, will she say what the Government’s purpose was behind what they are doing on surpluses? I know we will come to that in much greater detail later on.

It seems to me that two things are behind this. One is doing something with a surplus, which begs the question: how much of a surplus should actually be taken? Also, how is that surplus calculated, bearing in mind that a range of actuarial factors—including the strength of the employer covenant, the level of risk of the investment, the actuarial factors regarding life and death, and so on—go into making up a surplus? All those factors can, at each valuation, move the surplus considerably. Therefore, how much is considered surplus surplus, as it were, as opposed to prudent management by the trustees?

The second thing is, I think, the underlying thought that the money given back to the employer will be used for investment. I see no evidence to suspect that will be the case. I have a horrible suspicion that, although we might have a desire to have more money for companies to invest, with the best will in the world, it is more likely that they will take the money, run it through the P&L and use it to pay dividends.

Those are the two issues I am looking at: the quantum of surplus and, in general terms, the principle behind that; and, secondly, the extent to which the Government expect it to be used for investment. If they do expect it to be used for investment, how do they hope that will happen?

[Lord Kirkhope of Harrogate (Con)]

My Lords, I declare my interests as a current member and director of a pension trust. I want to take us back to the amendment for a moment. I shall refer to the reference to surpluses made by the noble Viscount, Lord Thurso, because it is an indicator of how this Bill is going to move; I suspect we shall get a surplus of comments about surpluses.

I go back to the amendment. We are starting to hear remarks suggesting that this amendment is critical. I do not criticise it at all because this is an enormously complex and comprehensive piece of legislation. Bringing our minds closely to the purpose of what we are going to debate, if ever a piece of legislation required it, this amendment is an essential ingredient. I fully support all parts of this amendment, which seem to encapsulate all the different areas to which we shall give more detailed consideration as we proceed.

However, I want to refer briefly to something already referred to: the matter of pension scheme surpluses under subsection (1)(h) of the proposed new clause to be inserted by Amendment 1. I referred to this at Second Reading; I will not repeat word for word what I said then—that would not be appropriate—but I want to probe my noble friend and, in particular, the Minister on this matter a little.

We all know that, historically, when we had low interest rates in this country, deficits often used to be repaired with any surpluses that might occur in schemes. As a result, employers that did not have DB schemes were obviously at a disadvantage. I am interested in how we might deploy surpluses in future. For instance, will they be deployable for capital expenditure? That seems quite desirable, particularly looking at the economy at present.

My second point concerns crossovers, referred to here, enhancing the contributions that already exist in DC schemes. How on earth can crossovers be legitimately and properly handled? That seems rather difficult to me.

Finally, I turn to surplus sharing. There is a case going on at the moment; I referred to it in my speech at Second Reading so I will not go back to it now. The encouragement of surplus sharing between employers and between members is terribly important. How can that be done fairly and equally? Will we be able to rely—as we should, I believe—on the powers of trustees always to do everything in the best interests of members? Pressures from employers, for instance, must be curbed when it comes to those decisions that might be taken.

It is a difficult area. I know that we will look at it in more detail, but it is worth mentioning at this starting point because this list is perhaps another example of how complicated things are and how we need to get a grip. Whoever has been responsible in the past for legislation in this field, this is an ideal opportunity, which I greatly support, for us to get this right. I therefore fully support Amendment 1 and hope that, as we move forward, we will use those objects as the basis for our discussions.

--- Later in debate ---

[Viscount Thurso (LD)]

My Lords, I will briefly give my support to the noble Lord, Lord Davies. I believe that many schemes would absolutely like to put money into social housing. The scheme of which I am a trustee, and which I mentioned earlier, has recently put 5% into social housing—it is entitled to do that, and it did so based on an investment case. It has put a further 5% into social infrastructure—it has also done that based on an investment case; it is part of the protection assets within the fund. We are allowed to do that, so can the Minister therefore say whether anything in the Bill prevents the funds that we are discussing from doing exactly the same thing?

[Baroness Stedman-Scott (Con)]

My Lords, we come to another group of largely probing amendments, which I welcome. A good deal of the process on the Bill will be about unpacking what the Government intend, how these provisions will work in practice and what the industry can anticipate. Certainly, those are the questions that have been raised with me in my engagement with representatives.

I will speak briefly to the amendments in the names of other noble Lords, many of which are clearly probing in nature and raise important and legitimate questions about how Local Government Pension Scheme assets might be deployed to support wider economic and social objectives. We welcome that debate. It is right that Parliament explores how long-term patient capital can help support UK growth, infrastructure and social outcomes. I recognise the spirit in which these amendments have been brought forward.

However, from our side, we believe that it is important to be clear about a central principle: LGPS funds are, first and foremost, fiduciary vehicles. Scheme managers have a legal duty to act in the best financial interests of members and beneficiaries, and that duty must remain paramount. However, I note that the Local Government Pension Scheme’s advisory board has already warned that:

“New government regulations could ‘directly usurp’ the most fundamental duty of council pension funds”.


Could the Minister address that in his response?

Opportunities for investments in areas such as UK growth assets or social housing should therefore be presented, structured and made investable in a way that meets risk-adjusted return requirements and not mandated or directed through statute. There is a clear difference between creating a strong pipeline of investable opportunities and compelling capital allocation. Once we move from encouragement to prescription, we risk undermining trustee independence.

Many of the amendments in this group helpfully test where that boundary should sit, and I hope that the Minister can reassure the Committee that the Government’s approach is to enable, not to direct, in order to attract pension investment through quality and value, not through compulsion. If we keep fiduciary duty at the centre and focus on making UK opportunities genuinely competitive investments, growth and good pensions will go hand in hand. That is the balance that we are keen to see maintained.

I shall speak to my two amendments in this group, Amendments 9 and 11, which are intended to improve clarity, accountability and future-proofing in Clause 2, rather than to change the underlying investment powers of the scheme managers.

Amendment 9 would require scheme managers to publish an annual report on the local investments held within their asset pool companies, including both the extent of those investments and their financial performance. If local investment is to play an increasing role within LGPS portfolios, transparency is essential. Members, employers and taxpayers are entitled to understand not only where capital is being deployed but how it is performing. This amendment would not mandate local investment; nor would it direct decision-making. It simply asks that where such investments are made, they are visible, measurable and open to scrutiny. The question it poses to the Government is straightforward: is transparency, rather than compulsion, the right way to build confidence in local investment? We believe that it is.

I add at this point that a great many Bills are coming before your Lordships’ House in which the interaction with post-devolution structures is far from clear. The Government should be making more of an effort to provide clarity on the post-devolution picture when drafting legislation. I therefore ask the Minister—here come the exam questions—how do the Government intend to keep the definition of strategic authorities under review as devolution evolves? What assurances can be given that future legislation will align properly with the new devolved arrangements? Do the Government accept that there is a risk of confusion and overlap if these definitions are not regularly updated to reflect constitutional changes? More broadly, what steps are the Government taking to ensure a coherent and consistent approach to the interaction between the new powers and devolution settlements? Crucially, how will assets and liabilities be carved up post devolution, and can the Minister assure us that this will be done independently? I am very happy for the Minister to write, rather than bombarding him with a massive amount of work now—although maybe we should; I do not know.

Amendment 11 is probing in nature and concerns the definition of strategic authorities. Currently, the Bill hard-codes a specific list of bodies in primary legislation, yet the architecture of English devolution is changing rapidly, not least through the forthcoming English devolution Bill. This amendment therefore asks whether that definition is sufficiently agile and future-proofed or whether it risks becoming outdated almost as soon as it is enacted. It invites the Minister to explain how the Government intend to ensure that LGPS governance can adapt to evolving local and regional structures without requiring repeated primary legislation.

Taken together, these amendments seek to strengthen Clause 2 by reinforcing accountability on the one hand and flexibility on the other, while preserving the core principle that investment decisions must remain firmly rooted in fiduciary duty. I look forward to the Minister’s response to the questions the amendments raise and his reassurance that the Government’s approach is to enable good investment decisions through transparency and clarity rather than prescription.

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I see that the noble Viscount wants to intervene. I was just about to come to his point, but perhaps he is intervening on another point, so I will sit down.

[Viscount Thurso (LD)]

Does the Minister agree that ESG and responsible investing is perhaps best summed up in the stewardship code, which most responsible investors use?

[Lord Katz (Lab)]

I could not have put it better myself. We have to be careful in regarding ESG as fashionable politics, inserting itself into a fashionable investment space. We have to be careful not to throw the baby out with the bathwater and to really appreciate that there are good reasons why certain investments are more popular and investments in other areas are being shunned. There are trends in industry and society as to what products and classes of investment are popular. Sometimes, we can overthink these things.

I am pleased that the noble Viscount, Lord Thurso, popped up because I was just about to address his question about the Bill preventing funds setting targets on local investment, on this theme. I hope this answers his question: they must set a target, but it can be any value that the fund considers appropriate. They retain that element of flexibility, which I hope is helpful.

Regarding Amendment 9, the Government will require some administering authorities to report on their local investments, including the total investment, and on the impact of investments, in their annual reports through guidance. We consider that Amendment 9 would be an unnecessary duplication of a requirement that was already set out in guidance and in regulations. We think that it would not add anything to the Bill, as that regulation is already good practice—it is already there.

Amendment 12, spoken to by noble Baronesses, Lady Bowles and Lady Altmann, seeks to expand the definition of local investments beyond stretching point: it could mean investments for the benefit of persons living or working in any of the administering authorities’ local areas. Our fear here is that the amendment would, in effect, break the definition of local investment, as it could mean any investment in England and Wales. We contend that local investment, as it stands, has a broad definition, as it can refer to investments that have measurable beneficial impact for people living or working in areas local to, or in the region of, the administering authority, or of its pool partner administering authorities. As a consequence, this is broad enough to capture an appropriately wide geographic range while ensuring that there are still benefits for the local area.

To ensure a clear and firm trajectory to consolidation and benefits at scale for the scheme as a whole, along with the assurance I hope I have provided to the noble Lords in discussing these amendments, I respectfully ask my noble friend Lord Davies to withdraw his amendment.

Pension Schemes Bill

Viscount Thurso Excerpts

Committee stage
Wednesday 14th January 2026 Grand Committee

[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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[Viscount Thurso (LD)]

May I ask one point of clarification from the noble Viscount, Lord Younger, when he comes to wind up at the end of this debate, again on risk? I read this amendment as being about the risk register—the list of risks faced by the organisation and how they are dealt with—rather than the level of risk that is taken in investing assets, which will determine the return level. I wonder whether he could give us clarity on that.

[Lord Katz (Lab)]

My Lords, I am grateful to the noble Viscount, Lord Younger, for tabling these amendments and, as the noble Lord, Lord Fuller, said, for giving us this short but sweet opportunity to discuss the management of the schemes.

I join the noble Lord, Lord Fuller, in using this opportunity to pay tribute to all those who are involved in the work of running the LGPS. He is absolutely right that it is a thankless and hard task; this is an opportunity for me to put on record that I am in complete agreement with him on that matter, although I say gently, as we are on the last group for today, that his definition of “sexy” differs from mine somewhat—but each to their own.

I recognise that the intention behind these amendments is to ensure the robust management of funds and assets in the LGPS. The Government share this aim and are taking steps to ensure that the reforms are implemented soundly. I am happy to confirm to the noble Viscount, Lord Younger, that “management”, as established in Clause 8, is not a narrow administrative concept but a comprehensive responsibility encompassing governance, oversight and compliance. The Government are clear that administering authorities and asset pool companies must regard adherence to all applicable laws and regulatory requirements as a core, non-negotiable element of their management duties.

This expectation reflects the principle that robust compliance is fundamental to safeguarding assets, maintaining public confidence and ensuring accountability throughout the system. In particular, under the provisions of this Bill, all investment management activity beyond setting high-level investment strategy will be delegated to the asset pool company, which will be required to seek authorisation from the Financial Conduct Authority. FCA authorisation and supervision will provide vital assurance to members and employers that very large pools of capital will be managed properly, including ensuring that robust procedures for identifying and managing risk are in place. The Government have written to the asset pools to set out the new requirements in Clause 1 and are engaging closely with pool company leaders to monitor progress on meeting them in good time. In addition, subject to the passage of the Bill, the Secretary of State intends to make regulations and issue guidance on asset pooling and fund governance, which will set out the expectations on LGPS funds and pools.

On strengthening fund governance, administering authorities will continue to be responsible for holding pools to account on their performance, including on how risks are managed. To strengthen governance and accountability further, regulations will require administering authorities to appoint the new positions of “senior officer” and “independent person”, subject to the outcome of the consultation. Senior officers will take the leading role in representing their funds in the governance of the asset pool in which they participate, and independent persons will offer professional expertise to support pensions committees on investment strategy, governance and administration—including holding the pool to account.

Administering authorities will be better able to manage risk and ensure compliance as a result of the new powers relating to independent governance reviews set out in Clause 5. Independent governance reviews will ensure that administering authorities review their governance and their compliance with the legislation, supported by independent scrutiny, to provide assurance to members and employers. In response to the question from the noble Viscount, Lord Younger, on whether we are attempting to constrain the concept of management, the answer is that we are not. The list provided is an inclusive one, not an exhaustive one. As I have said, compliance with laws and regulations and effective risk management are assumed in the Bill, as they are in existing LGPS legislation, with the latter also provided in the requirement for asset pools to be regulated by the Financial Conduct Authority.

The provisions in this Bill are already adequate to ensure that asset pool companies and administering authorities are compliant with the law and have adequate controls in place with regard to the identification and management of risks. Given that, as well as my explanations, I hope that I have satisfied the noble Viscount, Lord Younger, and provided the assurances that he sought. I respectfully ask him to withdraw his amendment.