Contribution
My Lords, I will speak to Amendments 2 and 5, which address the same underlying issue—whether pooling and expertise in the Local Government Pension Scheme is intended to support good investment decisions or to constrain them. I will speak in support of Amendment 4, to which I have added my name.
No one disputes that there can be value in scale, but scale does not require exclusivity. Nothing in the case for pooling requires funds to confine to a single pool, unable to access specialist expertise developed elsewhere. The LGPS is a federation of, I think, 89 funds with different demographics, liabilities and investment strategies. It is entirely foreseeable—indeed, it is already happening—that one pool will develop a particular strength in, say, infrastructure, and another in renewables or local investment opportunities, or, as has already been outlined, it may be that the investment opportunity is large and accessible only by more than one joining together. Why should a fund be prevented from accessing that expertise or that scale simply because it sits in a different pool? Looking at it from the non-scale end, I have personally spoken to fund managers who wanted to invest local to support infrastructure at local scale but who do not want all that exposure in their own area, for reasons of diversification. They have had their fingers burned with shopping centres. The current drafting would make that unnecessarily difficult.
In Committee, the Government were clear that they want to avoid forced or value-destructive transfers of assets between pools. Allowing funds to participate in more than one pool and allowing cross-pool investment is one of the simplest ways to avoid exactly that. If a fund can access a specialist vehicle without having to replicate it internally or move assets unnecessarily then that is a win for the scheme members. The purpose of pooling was to broaden access to expertise, not to narrow it; to create economies of scale, not to create silos; and to support better long-term investment decisions, not to restrict the routes through which those decisions could be implemented.
The noble Lord, Lord Fuller, has reminded us of many of these issues, as he did in Committee. The LGPS is a British success story, delivering strong returns, low costs and high efficiency for 6.7 million members. His warning was and is that the Bill risks fettering the independence of schemes to make the best long-term decisions for their members. These amendments go directly to that point, and it would be beneficial if the Government could recognise this—I really cannot see what they would take away.
I therefore suggest that the Government seriously consider adopting these amendments. They are modest but important. They would not weaken pooling but strengthen it, they would not undermine scale but enhance it, and they would not challenge the Government’s policy direction. They would simply ensure that the LGPS could operate as a coherent system, rather than a set of sealed compartments. I hope that the Minister will see them as constructive corrections to support fiduciary duty, improve efficiency and help deliver the very outcomes that the Government say they want.
I turn to Amendment 4. The noble Baroness, Lady Noakes, has already explained in detail why it is a good amendment, and we on these Benches support it. It would be a safeguard to make sure that the same kind of mandation that the Bill contains for default pension funds did not creep across through regulations into the LGPS. That may not be the intention now, but, as elsewhere in the Bill, there are no safeguards against the future intentions of we-do-not-know-who in a change of circumstances. It is a bad thing in legislation to continually have these open abilities to make regulations, billed as doing one thing but completely open sometimes to do almost the opposite. The precedent has been set elsewhere in the Bill by the drafting and, no matter how it ends up, we need to be certain that it cannot creep into local government. I therefore support Amendment 4, and we will support the noble Baroness, Lady Noakes, if she is minded to divide the House.