Viscount Younger of Leckie (Con)

My Lords, I will address Amendment 12, which stands in my name and that of my noble friend Lady Stedman-Scott. This amendment addresses an issue that sits at the very centre of the concerns we have raised throughout the passage of the Bill: how contribution rates in the Local Government Pension Scheme are set, reviewed and scrutinised. This debate will take us further than the previous debate on a related issue. Throughout the passage of the Bill, we have returned repeatedly to a central concern about the Local Government Pension Scheme: whether the system as it currently operates is truly striking the right balance between prudence and responsibility to members. We touched on that during the last debate. Prudence is essential; no one disputes that. Pension promises stretch across decades and it is entirely right that those responsible for safeguarding them adopt a careful and responsible approach—I feel sure that when or if he chooses to speak, the noble Lord, Lord Davies, will have something to say on this matter—because prudence must also be proportionate, transparent and sustainable. A pension system must not only protect members’ benefits; it must also operate in a way that is affordable for those who are required to fund it. That balance is fundamental to the long-term health of the scheme and a key consideration for many admitted bodies considering if they should remain a member of it. The noble Lord, Lord Katz, alluded to this in a previous debate, but at present employer contribution rates are set through the actuarial valuation cycle which takes place, as he may have said, every three years—note: every three years. That process is well established and plays an important role in maintaining the long-term stability of the scheme. But it also means that once those rates are set, employers can find themselves locked into them for a considerable time, even if the financial circumstances of the scheme or of the employer itself change significantly during that interval. We believe that rigidity is increasingly difficult to justify. We know that financial conditions can change quickly. Employer finances can change, liabilities can change and market conditions can shift. We know that from recent experience, yet, under the current framework, the mechanisms for reviewing contribution rates between valuation cycles are limited and, in practice, often opaque. Amendment 12 seeks to address that problem by creating a clearer and more transparent framework for reviewing employer contribution rates earlier when circumstances change. Under this amendment, administering authorities would be able to carry out an interim review of contribution rates where there has been a significant change in scheme liabilities or in an employer’s financial position, or where an employer formally requests a review and agrees to cover the reasonable costs of undertaking it. We believe this is a very reasonable and sensible change. It makes the process more accessible to employers who believe that the contribution rates they are being asked to pay no longer reflect reality. It recognises that financial circumstances do not move neatly in three-year cycles—and nor do they—and allows the system to respond when material changes occur. However, the amendment goes further than simply enabling reviews. It also strengthens transparency around the actuarial assumptions that underpin those decisions. That level of transparency is essential, as was again debated in the previous group. Contribution rates have few real consequences for employers participating in the scheme, whether local authorities, academies, housing associations or many others. Those organisations must plan budgets, allocate resources and deliver services on the basis of the costs they are required to meet. They should therefore be able to understand the assumptions and methodologies that determine those costs, so this amendment helps to ensure that contribution rates can respond to changing financial circumstances. It would ensure that employers are not locked into potentially outdated rates for three years at a time and that the actuarial assumptions underlying those decisions are transparent and, very importantly, open to scrutiny. Ultimately, this is about responsibility. We all expect public bodies to act responsibly when they handle public money, and pension funds are no exception. As we have heard, they manage very substantial sums of money, and the decisions taken within those systems have consequences for not only scheme members but employers and taxpayers. With responsibility must come transparency and accountability, and where contribution requirements change or are reviewed, the assumptions behind those decisions should be visible and understandable. However, crucially, this amendment would not undermine the role of actuaries; nor would it weaken the prudence that underpins pension funding. It would ensure that the system remains responsive and more flexible, transparent and accountable to those who are required to fund it. For those reasons, this amendment represents a constructive and necessary improvement to the framework governing the Local Government Pension Scheme, and I urge the Government to adopt it. I will, of course, listen very carefully to the upcoming debate, short or long, but I give notice that I am minded to test the opinion of the House. I beg to move.