Contribution
My Lords, I want to start by thanking my noble friend Lord Fuller for commencing our discussions on this important Bill, which is now on Report. We on these Benches look forward to an effective and constructive Report and hope that we can work with noble Lords across the House to make the improvements to the Bill that, in our view and that of many in the pension sector, are desperately needed.
Towards the end of my remarks, I will speak to the important Amendment 4, in the name of my noble friend Lady Noakes, but first I will speak briefly in support of Amendment 1, in the name of my noble friend Lord Fuller, and Amendments 2 and 5, in the names of my noble friend Lord Fuller and the noble Baroness, Lady Altmann. Taken together, these amendments would make constructive improvements to the Bill.
Amendment 1 would ensure that both the Government Actuary’s Department and the Pensions Regulator are formally consulted before directions are given in relation to asset pool companies. This seems an eminently sensible and proportionate safeguard. The provisions in the Bill give the Government significant powers to direct changes relating to LGPS pooling arrangements—changes that, in practice, may reshape the investment structures of some of the largest pension funds in the country.
Decisions of that magnitude should not be taken without the benefit of the best available expertise. Requiring consultation with the Government Actuary’s Department and the Pensions Regulator would ensure precisely that: actuarial and regulatory oversight would be brought to bear before such directions are issued. This would help to ensure that decisions that could materially affect the funding, governance and investment strategy of the LGPS are taken with expert input. That seems an entirely reasonable expectation when we are dealing with funds that collectively safeguard the retirement incomes—we must not forget this—of millions of public servants.
Amendment 2 addresses another important point. As the Bill stands, regulations may prohibit a scheme manager from participating in more than one asset pool company at the same time. This amendment would remove that provision. Doing so would give scheme managers greater independence in determining how best to structure their investments. If, as was mentioned earlier, one asset pool develops particular expertise in, say, infrastructure, private markets or another specialist asset class—akin to a centre of excellence, perhaps—there may well be circumstances in which it is entirely sensible for multiple schemes to participate in that pool for that purpose.
The noble Baronesses, Lady Bowles and Lady Altmann, put it very eloquently. Preventing scheme managers accessing such expertise simply because they already participate in another pool risks imposing unnecessary rigidity on the system and is unnecessarily prescriptive and inflexible. By removing that restriction, this amendment would allow scheme managers greater freedom to act in the interests of their members—which, as the Government sometimes forget, must remain the central principle guiding all decisions in the management of pension assets.
Amendment 5 follows a similar logic. It would remove wording that restricts how asset pool companies can undertake investment management activities, thereby allowing investment opportunities created within one pool or by one scheme manager to be accessed more widely across the LGPS. In practical terms, this would facilitate cross-pool collaboration within the scheme. Rather than forcing each pool to operate in isolation, it would allow expertise and opportunities to be shared, broadening the menu of options open to scheme managers when determining how to allocate assets and pursue long-term returns. At a time when the Government are encouraging greater scale and collaboration within pension investment, it seems entirely sensible that the legislative framework should not inadvertently constrain that collaboration if that is the choice of the scheme manager, to the ultimate benefit of members of that scheme.
More broadly, these amendments recognise an important principle. As structural changes are made to the way that LGPS operates that could significantly reshape the pensions landscape as a “coherent system”—as the noble Baroness, Lady Bowles, well put it—it is essential that those responsible for managing pension funds retain the flexibility to exercise their judgment in the interests of their members. Pooling can bring benefits, but it should not come at the expense of professional discretion or fiduciary responsibility. These amendments strike a reasonable balance: they would strengthen oversight where central powers were exercised, while preserving the ability of scheme managers to make decisions that best served the members whose pensions they are entrusted to protect.