- Commons Reasons and Amendments
- 6:36 pm
- Motion A
- That this House do not insist on its Amendment 1, to which the Commons have disagreed for their Reason 1A.
- 1A: Because the Commons consider that it is not necessary to include the asset and location provisions mentioned in the amendment.
- My Lords, in moving Motion A, I will also speak to Motions B, B1 and C. The Commons have disagreed with Amendment 1 on the grounds that it could introduce, rather than mitigate, risks that the provision in Clause 2 could be used in unintended ways. Amendment 1 would place an explicit prohibition on regulations made under Clause 2, including any provision requiring investment in particular assets or asset classes, or in particular locations.I acknowledge the concern that lies behind this amendment, and I wish to reiterate the Government’s position clearly for the benefit of the House. The Government have no intention of using the powers in Clause 2 to require asset pool companies to invest in specific assets, asset classes or locations. The Bill, as drafted, does not provide a legal basis for the Government to tell asset pool companies what investments should be made or where those investments should be located. Indeed, by expressly setting out particular matters that regulations may not address, the amendment risks introducing ambiguity about the scope of the regulatory making power. It could invite the inference that matters not explicitly excluded are in fact permissible; such an approach could therefore weaken the clarity of the legislative framework and increase the risk of misinterpretation or challenge.I note that, in 2020, the Supreme Court ruled that the powers to make LGPS regulations had to be interpreted in line with Parliament’s intention, which was that LGPS investment decisions should be made in a way consistent with funds’ fiduciary duties. Although the Bill provides for asset pool companies to take investment decisions rather than funds, there is nothing in the Bill that overrides this broader intention, meaning there is nothing in the Bill that allows Government to tell asset pool companies to invest in specific assets, asset classes or locations. For these reasons, the Commons were of the view that Amendment 1 is both unnecessary and potentially counterproductive. The Government agree with that assessment.Motion B sets out that this House do not insist on its Amendment 5 because the Commons consider that it is not appropriate to impose the publication requirements mentioned in the amendment, and that any additional requirements should be considered after the next report under Section 13 of the Public Service Pensions Act 2013 has been prepared. I thank the noble Viscount, Lord Younger, for his amendment in lieu in Motion B1, the intent of which, I believe, is already substantively met by the Government Actuary’s statutory Section 13 review of the LGPS valuations and the consultation on Regulation 64A, which relates to interim valuations, that MHCLG has already committed to running later this year.The 2025 LGPS valuation has recently concluded. I am pleased to note that, taken across the whole scheme, the average employer contribution rate reported at the 2025 valuations of the LGPS in England and Wales has reduced by slightly less than 5% of pensionable pay, relative to the equivalent amount quoted for the 2022 valuations. This figure has been confirmed by the GAD’s analysis of the published valuation reports. There is of course variation to this across the country, and I understand the concern with ensuring that valuations are balancing stability for the scheme with value for money for the taxpayer.
- 6:45 pm
- My Lords, in speaking to Motion B1, I welcome that the Government have committed to a review of Regulation 64A of the Local Government Pension Scheme Regulations 2013. That is an important and necessary step, and their further commitments today are most welcome.However, if the GAD review is to be meaningful, it must first focus on the factors that directly drive employer contribution rates. In particular, it should examine the effectiveness of consultation between fund actuaries, administering authorities and scheme employers.Secondly, the GAD review must examine outliers in valuations. There is increasing evidence that some funds are applying discount rates that are significantly more prudent than those implied by gilt yields or insurer pricing, despite the Local Government Pension Scheme being an open, funded and asset-backed scheme.Thirdly, Section 151 officers are rightly expected to scrutinise expenditure rigorously, including pension contributions, just as they would any other area of spending. When budgets are tight and local taxpayers are under strain, those responsible must be able to understand the methodologies being used, weigh the trade-offs and, where necessary, challenge the conclusions reached by fund actuaries.It was with these concerns in mind that amendments were tabled in Committee, as the Minister is aware. Where such issues arise of the kind that I have outlined there is currently little recourse. Employers may be forced to wait up to three years for the next valuation cycle before any action can be taken. That is a considerable period to carry contribution rates that may be excessive or difficult to justify. The principle in our amendment is simple: the review identifies the problem and the interim review under Regulation 64A provides the remedy.On these points, I am glad that the Government have broadly recognised the concerns I have raised in my amendment. I shall listen to the remainder of the debate on this group, but I am more reassured now that this is a priority for the Government and that they are aware of the concerns that we have been outlining. I thank the Minister for his movement on this.
- My Lords, I thank the Minister for explaining things in great detail from the Government’s perspective.I will speak to Motion B1, which the Minister said has already been met. The Local Government Pension Scheme already has mechanisms to review and amend employer pension contributions and funding practices; for instance, under Regulation 64A of the Local Government Pension Scheme Regulations 2013. There is even an existing GAD reporting mechanism under the Public Service Pensions Act 2013, which reports on compliance, consistency, solvency and long-term cost efficiency, with such reports having been carried out in 2018, 2019 and 2024. Therefore, we on these Benches think that the Government’s efforts should be focused—as they are, I think—more on implementing the recommendations of those reports, rather than duplicating efforts. We will probably abstain on Motion B1; we recognise its importance but think it is already being met.Motion C is a government Motion, so I come to Motion D. Amendment 13 would extend the period before a pension pot is classified as dormant, increasing the threshold from one year to three years. We supported this increase earlier in the passage of the Bill, as it would provide greater flexibility for savers such as mothers, those on sabbatical or mature students. Motion D1, from the noble Baroness, Lady Altmann—
- Motions D and D1 are the opening Motions of the next group.
- Have they been moved?
- Not yet.
- It says “D1” on the Order Paper.
- It is in the second group.
- I see. I am sorry. Forgive me, I was going on to the next group.On Motion B1, we will abstain rather than vote against it, because we think that these things are already in process, if dealt with properly.
- I am glad that, for once, our debate on the LGPS has been short and sweet. I thank both opposition Front Benches for their engagement on this issue. I am glad that the noble Viscount, Lord Younger, recognised that there has been movement. We understand the importance attached to the nature of the reviews. I hope that what I said has met his need for us to demonstrate that we are taking it seriously, which, of course, we are.In response to the noble Lord, Lord Palmer, I hope that he will be in a position where his abstinence will not be needed because the noble Viscount will not be testing the opinion of the House, but we shall see. I beg to move.
- Motion A agreed.
- Motion B
- That this House do not insist on its Amendment 5, to which the Commons have disagreed for their Reason 5A.