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—