Pension Schemes Bill

Viscount Younger of Leckie Excerpts

Wednesday 14th January 2026 Grand Committee

Moved by

[Viscount Younger of Leckie]

16: After Clause 7, insert the following new Clause—
“Local Government Pension Scheme: statutory funding objective(1) The Secretary of State must by regulations specify a statutory funding objective for the Local Government Pension Scheme. (2) The funding objective must have regard to—(a) the long-term ability of scheme employers to meet contribution costs,(b) the fair distribution of costs and risks between current and future taxpayers,(c) the open and ongoing nature of the Scheme, and(d) the appropriate management of investment and longevity risk.(3) In setting or revising the funding objective, the Secretary of State must publish an assessment of the extent to which the objective prioritises—(a) risk elimination,(b) contribution stability and affordability, and(c) intergenerational equity.(4) Administering authorities must have regard to the statutory funding objective when commissioning actuarial valuations.(5) Regulations under this section are subject to the affirmative procedure.”Member’s explanatory statement
This amendment requires the Secretary of State to set a clear statutory funding objective for the Local Government Pension Scheme, clarifying the balance between prudence, affordability and intergenerational fairness.

[Viscount Younger of Leckie (Con)]

My Lords, we have a changing of horses: I will speak to the four amendments standing in my name and under the name of my noble friend Lady Stedman-Scott, which together develop and expand on the arguments already made from this Dispatch Box on the LGPS. These amendments address four specific concerns, each going into greater depth on the holistic and wider interpretation of Regulation 62(6) of the local government regulations discussed in the previous group.

I should at the outset address a point made on the last group by the noble Lord, Lord Davies. I reiterate that we are not questioning and never have questioned the success of the LGPS. I made that clear on Monday, as he will know, because indeed it is a British success story. But surely he would agree that it is right to debate and to challenge the Government on what happens next in the context of this Bill and the future of the LGPS, not least concerning decisions over the increasing values of the surpluses and their management. The noble Lord, Lord Fuller, has raised the important point about stability as a debating point. That has to be a good thing, and I am sure that it will be returned to.

The noble Baroness, Lady Altmann, also made some basic, high-level points about the importance of and challenges around long-term planning and opacity in solvency definitions and actuarial valuations. I mention this because it is relevant in the context of these four amendments.

I want to be clear at the outset on what these amendments do and do not seek to achieve. They do not seek to weaken the scheme, undermine members’ security or prescribe a particular actuarial approach. Rather, they are intended to probe policy discipline, transparency and proportionality in a framework in which prudence has increasingly become an end in itself, and to bring four specific and important debates to the fore.

I begin with the first amendment, on funding objectives. At present, the LGPS has no explicit statutory funding objective. That is an extraordinary omission given the scale of public money involved and the consequences for employers, taxpayers and local services. In practice, actuarial valuations have defaulted to ever greater conservatism without any clear statement of what that conservatism is intended to deliver or whose interests it is prioritising.

This amendment would, therefore, require the Secretary of State to set a clear statutory funding objective for the scheme—one that explicitly has regard to affordability for employers, fairness between current and future taxpayers, the open and ongoing nature of the LGPS, and the appropriate management of investment and longevity risk. Crucially, it would also require Ministers to be transparent about trade-offs. Prudence is not value-neutral. Prioritising the near-elimination of risk will inevitably come at the expense of contribution affordability and intergenerational equity. That may be a legitimate policy choice, but it is a policy choice none the less and should be made consciously, openly and with accountability.

Without such an objective, risk aversion can ratchet in one direction only. Funding assumptions increasingly resemble those of a closed insurance scheme, despite the LGPS being open, long-dated and, ultimately, tax-backed. The absence of a statutory objective allows this drift to continue unchecked, regardless of value for money or wider public sector affordability. So I ask the Minister: does he see merit in such an objective? If not, how does he believe we can otherwise ensure that the balance between prudence, affordability and fairness is being struck correctly? It is not clear to us how the fund has reached this conclusion, based on the information provided to date.

I turn to my second amendment, which addresses a closely related concern: the absence of effective bench- marking in the valuation of liabilities. It would require administering authorities to publish benchmark liability valuations, based on insurer pricing and gilt-based discount rates, alongside their primary funding valuation. This amendment would not require LGPS funds to adopt insurer pricing, and it would also not impose any particular funding outcome. It simply poses a reasonable and necessary question: why is an open public service scheme so often valuing its liabilities more conservatively than insurers, which actively assume, price and manage longevity and investment risk for profit? I would be grateful for the Minister’s view as to whether that position is genuinely appropriate.

From the most recent valuation cycle, we have seen numerous case studies in which actuarial assumptions appear to value liabilities as though they were safer than sovereign-grade certainty of payment. In one case study that was shared earlier, the councils in question had liabilities measured at gilts minus 0.2%. In another, liabilities were measured at gilts minus 0.1%. We even encountered an admitted body whose cessation basis was funded at gilts minus 2.5%. That single difference in assumption resulted in a £70 million cessation debt were the employer to exit, compared with a £30 million credit if the liabilities were valued on an insurer-aligned basis—namely, gilts flat.

This has direct consequences for the measurement of surpluses, and we know that reported surpluses would be materially higher under less extreme assumptions. In the latter case, the outcome is, in effect, regulatory deadlock. The employer cannot afford a £70 million cessation debt. The regulations do not permit exit on an insurer-aligned basis. Buyout is not permitted. The employer is therefore overfunded, legally trapped, and compelled to continue paying unaffordable contributions.

The LGPS is a long-term open scheme, explicitly linked to investment growth and supported by a strong employer covenant. Earlier today, we discussed the scale of reported surpluses—which are measured on assumptions approaching sovereign-grade certainty. There is a clear tension here, and it merits proper scrutiny.

At present, there is no obligation to show how LGPS assumptions compare with market pricing, no requirement to justify materially higher levels of prudence, and no visibility of the opportunity cost, most notably in the form of higher employer contributions borne by councils, and ultimately by taxpayers. Benchmarking would bring those assumptions into the open, render prudence contestable rather than axiomatic, and strengthen democratic scrutiny of decisions with substantial fiscal consequences.

Even in policy areas far less complex than public service pensions, we readily acknowledge that different measures and benchmarks can produce materially different outcomes. Given the scale, the duration and complexity—

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[Viscount Younger of Leckie (Con)]

My Lords, even with policy areas as complex as public service pensions, we readily acknowledge that different measures and benchmarks can produce materially different outcomes. Given the scale, duration and complexity of the LGPS, it is surely reasonable to expect those comparisons to be made explicit, so I would welcome the Minister’s reflection on that point.

My third amendment relates to the treatment of surplus. In a growing number of funds, funding levels now exceed 150%, yet employer contribution rates often remain high, surplus is not meaningfully released, and employers are sometimes required to inject fresh cash to meet strain costs—even when substantial excess assets are already being held. There is currently no public interest test governing these decisions; as a result, surplus can become effectively trapped, while councils face rising costs and local taxpayers face higher council tax bills.

This amendment would not mandate the release of surplus or weaken member security; it would simply require administering authorities to publish and justify their policy on contribution flexibility and the use of surplus, where funds are materially overfunded, and, crucially, to explain how they have balanced prudence, affordability and the interests of taxpayers. Requiring authorities to give reasons when surplus is retained as a matter of principle is, I believe, a modest step, but it is also a necessary one if we are serious about transparency, proportionality and accountability in the stewardship of public money.

Let me be clear: the 120% funding level refenced in this amendment is not intended to prevent councils or admitted bodies from reducing surplus through lower employer contributions. It is a signalling threshold, one that identifies funds where surplus is clearly material and where policies on its use should be made explicit and open to scrutiny.

I turn to my fourth amendment, which concerns transparency, accountability and actuarial assumptions. Actuarial judgments now determine billions of pounds-worth of public expenditure, yet transparency remains pretty limited. Consistency is weak and changes in assumptions are too often left unexplained. In practice, the actuaries’ view has become decisive but rather opaque; assumptions harden over time, the impact on contributions is insufficiently set out, and there is no clear or consistent standard of proportionality.

I fully accept that the Minister cannot comment on the specifics of a case that he has not seen. However, in the interests of the Committee I wish to share a further example raised with the shadow team by an admitted body within the Local Government Pensions Scheme—and this example is, mercifully, relatively straightforward. That body recently received its valuation results as at 31 March 2025, and the results show the following. Its section of the fund was in surplus, as at 31 March 2022; both the funding level and the surplus in cash terms have increased since then and are larger at 31 March 2025, yet employer contributions are set to increase from 1 April 2026.

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I think I have covered the questions asked. I appreciate what the noble Viscount, Lord Younger, the noble Baroness, Lady Altmann, and others have done in tabling these amendments. I restate that once the report from the Government Actuary’s Department on the 2025 valuation is available, MHCLG, along with the scheme advisory board, will consider its recommendations carefully and take forward any necessary actions. In the light of this, I ask the noble Viscount, Lord Younger, to withdraw his amendment.

[Viscount Younger of Leckie (Con)]

I thank the Minister for his remarks and explanations. I will look carefully at his replies in Hansard, given the technical nature of the debate—in fact, I think it is fair to say that about all the debates we are having. In closing, I emphasise that these amendments are united by a single, simple concern that decisions of very large fiscal consequence are being taken within a framework that we believe lacks sufficient clarity, transparency and accountability. It has been helpful to have this debate, and I hope that view is shared by those who have contributed, particularly on this side of the Committee.

I will pick up on a number of points. I am grateful for the support of the noble Lord, Lord Palmer, and the noble Baroness, Lady Altmann, for these amendments. It is fair to say that they have had slightly more lukewarm support from my noble friend Lord Fuller, but I appreciate his thoughtful comments, particularly on Amendments 18 and 19. Again, we will look carefully at his responses in Hansard.

I am of the opinion that at my peril do I get caught between the opinions of the noble Lord, Lord Davies, and the noble Baroness, Lady Altmann. I listened carefully to the exchange about the quality of reports. My noble friend Lady Noakes made the very good point that it is important to have reports that are full of clarity and are understandable to those who are new to this or do not understand it. As the noble Lord, Lord Davies, said, some reports may be very clear to read, but reports vary, as my noble friend Lord Fuller rightly said. It is an important point to raise.

The noble Viscount, Lord Thurso, made a very fair point about subsection (3)(a) of the proposed new clause in Amendment 16, picking up on the description of risk elimination and seeking to change it to risk appetite. I might even add a third one: risk minimalisation. That is probably the wrong term, but it is a serious point. It may be that the term I have used, risk elimination, is the right one but refers to minimal risk. He made a very fair point which I will take away.

To conclude, the Local Government Pension Scheme is open, long-dated and underwritten by the public sector. Yet we believe that, over time, the practice has drifted towards assumptions and behaviours more consistent with a closed insurance arrangement, often without those choices being clearly articulated or justified. When prudence becomes the default, rather than a consciously chosen balance, the costs fall quietly but heavily on employers, taxpayers and local services.

Therefore, if the Government believe that the current framework already achieves that balance, explaining why would be valuable—this debate has been valuable as far as it has gone. If not, I suggest that these amendments offer a measured and constructive way of restoring discipline, transparency and trust in a system that matters enormously, I believe, to local government and to taxpayers alike. However, for the moment, I wish to withdraw my amendment.

Amendment 16 withdrawn.

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Moved by

[Viscount Younger of Leckie]

21: Clause 8, page 9, line 30, at end insert—
“(h) ensuring activities follow the relevant laws and regulatory rules;”Member’s explanatory statement
This is a probing amendment. It expands the definition of “management” of local government pension scheme funds and assets to test whether the Bill adequately reflects the full range of responsibilities involved in administering pension assets and seeks clarification from Ministers as to whether the Bill as drafted sufficiently captures these aspects.

[Viscount Younger of Leckie (Con)]

My Lords, in response to the noble Lord opposite, I can confirm that my opening remarks will be relatively short. Amendments 21 and 22, tabled in my name and that of my noble friend Lady Stedman-Scott, are largely probing amendments, directed not at altering the policy intent of the Bill but at testing the completeness of the framework that it sets out.

Clause 8 is an interpretation clause. It defines what is meant by the management of Local Government Pension Scheme funds and assets for the purposes of this chapter, and it does so by listing a number of illustrative activities. As drafted, those activities focus primarily, though not exclusively, on investment decision-making—that is, buying and selling assets, setting asset allocation, establishing pooled vehicles, selecting investments and so on. We fully accept that the clause makes it clear that this list is non-exhaustive. The phrase “include (among other things)” is well understood. None the less, what appears in a Bill still matters. It signals what Parliament understands to be central to the concept being defined and it shapes how subsequent powers are interpreted, exercised and defended. That is the purpose of these amendments.

Amendment 21 would make it explicit that “management” includes ensuring that activities comply with relevant laws and regulatory rules. Amendment 22 would similarly make it explicit that “management” includes handling risks, including how they are identified, assessed and kept under review. Neither amendment seeks to impose new duties or redefine existing obligations. Both simply ask whether the Government agree that compliance and risk governance are not peripheral but intrinsic to asset management.

Local Government Pension Scheme managers are fiduciaries; they operate within a dense web of statutory, regulatory and prudential requirements. Ensuring compliance with those requirements is not an administrative afterthought but a core managerial function. Likewise, risk management is not something that follows investment decisions; it informs them at every stage.

The reason why we raise this issue is not theoretical. Elsewhere in the Bill, powers are framed by reference to the management of scheme assets, and it therefore seems reasonable to ask the Minister to confirm on the record, if he could, that when the Government use that term it is intended to encompass the full spectrum of responsibilities that scheme managers already discharge, including legal compliance and risk oversight. In other words, is the Bill deliberately neutral as to those aspects because they are already assumed, or does the narrower emphasis of the illustrative list reflect a more constrained conception of management, one focused primarily on asset pooling and allocation? Our amendments invite that clarification.

In legislation of this kind, when significant powers are being taken and fiduciary duties are central, it is important that Parliament is clear about the assumptions that underpin the language being used. Therefore, I hope that the Minister can reassure the Committee that the Government agree that compliance with law and active management of risk are integral to the management of the LGPS assets, and that nothing in the Bill is intended to narrow or sideline those responsibilities. On that basis, I look forward to the Minister’s response and clarification, and I beg to move.

[Lord Fuller (Con)]

I speak as the vice-chair—former chairman—of the Local Government Pension Committee, the body that represents the employers’ part of the LGPS in the scheme advisory board. I welcome this set of amendments because it gives us an opportunity to place on record the breadth of what it takes to run a pension scheme: not just the sexy bits—investment and all that sort of stuff that you might read about in the Financial Times—but the real boilerplate of operating a scheme for nearly 7 million people.

It is wise to put on record some of the nuts and bolts that hold that boilerplate together. It is not just about risk management, governance, data quality, member engagement or the huge dashboard project. There are benefits statements, which have to be calculated accurately of course, within timeframes, and engaging with the department—I see in the Box some faces that I recognise in that respect. It is about advising on bulk transfers in and out, AVCs, commutation, tax, survivor benefits, McCloud, GMP, the exit cap, ill health adjustments and subject access requests—to name a small subset of about 100 different activities that pension fund administrators undertake. There is interpretation of regulations and helping software providers to keep up with the torrent of regulations so that pensions can be paid to the beneficiaries accurately and in a timely manner.

This work often encompasses helping bereaved families at a difficult time in their lives to navigate changes in benefits, inheritance tax and so forth. It is also a very important part of it that the scheme works together to train up a new generation of administrators alongside engaging with the Local Government Association, their Welsh colleagues, COSLA in Scotland and the Northern Irish scheme. I have had the pleasure of meeting many of these people engaged in these activities, and when you meet them you realise the fragility of the behemoth that is the LGPS. I pay tribute to their dedication, which is completely unsung, which ensures that the promises made to local government workers are kept and will be kept.

All those things that I have mentioned the Bill is silent on, which is a real shame. While it is not the purpose of a Bill to enumerate every single detail, more could have been said about the breadth of the work that is involved in running a pension scheme, which goes beyond fund management. These amendments from my noble friend seek to right that wrong, and I commend them.

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[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.

[Viscount Younger of Leckie (Con)]

I am grateful to the Minister for his response and for answering the questions that I posed—I think there were only one or two, but, again, I will check Hansard for my questions and his responses.

The Committee will be pleased to know that I have little to add to what I said earlier, but I would like to reiterate a broader point. The more clarity we can place in the Bill and the more we can place clearly on the record, the greater the certainty we will provide to trustees, funds and employers about changes to a landscape that profoundly shapes how they operate and discharge their responsibilities.

In this very short debate, I was particularly grateful for the points made by my noble friend Lord Fuller, backed up by my noble friend Lady Noakes. I appreciated my noble friend Lord Fuller’s focus, which it is important for the Committee to put, on what pension fund administrators actually have to do, and he was quite right to highlight the breadth and detail required in undertaking the role.

That leads me nicely on to answer a question raised by the noble Viscount, Lord Thurso, on Amendment 22. I will need to check, but my understanding is that when it comes to the role of a pension fund administrator, management includes handling risks. The question is how we define “handling”. My understanding is that it includes how risks are identified, assessed and kept under review, but it is quite possible that there is somebody above that level who takes full responsibility. Otherwise, my understanding is that it involves handling both the risk register and how risk is assessed and decided on in providing a return to investors, but I will investigate and come back to the noble Viscount.

In concluding, although today we might be debating definitions and interpretation, I have no doubt that those affected by this legislation are following our proceedings closely and are keen for as much clarity as possible from the Government on definitions, duties and responsibilities. For that reason, I would very much welcome any further clarification the Minister is able to give the Committee throughout our subsequent proceedings on the questions we raise on these matters. That would provide reassurance not only to this Committee but to those beyond it who are looking to these proceedings for guidance and certainty. I finish by saying that that really is true, in that we have been in touch with a number of third parties and those in the industry, and many of the comments made today and on Monday absolutely reflect their issues and concerns. With that, I beg leave to withdraw the amendment.

Amendment 21 withdrawn.