Baroness Stedman-Scott (Con)

My Lords, I hope the Committee will forgive me for the length of this amendment, which is tabled in my name and that of my noble friend Lord Younger of Leckie. Despite its length, its purpose is in truth a simple one. It seeks to ensure that the provision for interim reviews of employer contribution rates under the Local Government Pension Scheme is not merely available in theory but genuinely usable in practice. At present, while the regulation allows interim reviews, the circumstances in which they may be triggered are so narrowly framed and so conservatively interpreted that many employers find them effectively inaccessible. The consequence is that contribution rates can remain detached from the financial reality and workforce profile for prolonged periods, even when there has been a clear and material change in circumstances. I will not revisit the funding position of individual schemes, but it is important to note, once again, how sharply the position of the Local Government Pension Scheme has changed. Recent low-risk analysis shows the scheme moving from around 65% funded in 2022 to significant and sustained overfunding in 2025, with all funds now above 100%. That shift has clear implications for contributions. Even on prudent assumptions, implied future service rates are far below the roughly 21% that employers currently pay, at a cost of around £9 billion a year. The difficulty is that the formal valuation process is not designed to respond quickly to changing circumstances. In this case, the 2025 valuation cycle in a number of cases has already concluded. As a result, councils now face contribution rates based on assumptions that no longer reflect current financial conditions, with no realistic prospect of adjustment through the normal valuation timetable. In those circumstances, the interim review mechanism becomes the only viable route to a fair and proportionate outcome. Valuations are infrequent by design, but financial reality does not always conform to that schedule. Where there has been a material change in funding position, workforce composition or employer risk, interim reviews are intended to act as a safety valve, allowing contribution rates to be reassessed before costs are locked in for years at a time. In practice, however, access to that mechanism is so constrained that it often fails to perform the role it was created to serve. For that reason, although previous amendments address the deeper structural drivers of the current contribution pressures, I will turn to the interim mechanism. The proposed new clause before us does not change the intent of the law. It seeks only to ensure that the safeguards Parliament has already provided can be used effectively by councils whose contribution rates may no longer be justified by the scheme’s underlying financial position. Specifically, it strengthens Regulation 64A of the 2013 regulations by addressing the practical barriers that councils face when seeking a review. It clarifies when a review may be requested, requires funds to set out clearly how requests are made and assessed, introduces transparency around the actuarial assumptions and underpinning contribution rates, and promotes greater consistency through statutory guidance. Taken together, these changes do not weaken prudence or undermine solvency, but they make the process intelligible and navigable for the employers expected to engage with it. The underlying problem, therefore, is not that councils lack the right to request an interim review but that they lack a realistic means of exercising that right. Processes are unclear, evidential thresholds are opaque, and actuarial models are often presented in ways that make meaningful engagement extremely difficult. In those circumstances, Regulation 64A functions less as a practical safeguard and more as a theoretical reassurance. That matters, because the financial consequences for councils are immediate and real. Pension contributions represent a significant and growing share of local authority expenditure. When contribution rates remain misaligned with financial reality, they absorb resources that would otherwise support front-line services. Yet councils remain fully accountable to local taxpayers for their financial decisions, even when the assumptions driving those costs are neither transparent nor consistently applied. The result is a system that undermines sound financial management at precisely the moment when many authorities are already under severe strain. This brings us directly to the statutory duties that already rest on local government. Section 151 of the Local Government Act 1972 requires every authority to appoint a Section 151 officer, typically the chief financial officer, who bears personal responsibility for the proper administration of the authority’s financial affairs. These officers are legally obliged to ensure that expenditure is lawful, prudent and sustainable, and that duty does not stop at pension cost. Where long-term liabilities appear misaligned with risk, or where contribution volatility threatens service delivery, it is entirely reasonable that a Section 151 officer should be able to seek closer scrutiny through an interim review. If such an officer believes that the assumptions underpinning contribution rates warrant examination, the system should enable that scrutiny rather than obstruct it. This clause does not ask actuaries to abandon prudence or funds to compromise solvency; it simply ensures that those charged with financial stewardship are given the transparency and procedural clarity necessary to discharge their existing legal responsibilities. Indeed, this is the most significant change made by the amendment. It clarifies the trigger conditions for an interim review by amending the second condition so that an employer’s ability to meet its LGPS obligations is assessed in a way that is consistent with its statutory duties to deliver value for money and to maintain services for local taxpayers. At present, actuarial assessments tend to treat local authorities as possessing an effectively risk-free covenant, on the assumption that central government would ultimately step in to prevent failure. As a result, actuaries are understandably reluctant to accept that a council might be unable to meet its pension obligations, and contribution rates are set on the basis that payment is in practice guaranteed. However, that assumption does not reflect the financial reality facing local government. The strength of a council’s covenant is not unlimited; it is ultimately constrained by its local tax base and its legal obligation to balance its budget. Councils cannot borrow indefinitely to meet pension costs, and they also cannot insulate those costs from their wider responsibilities to residents. This amendment would require the actuarial assessments to recognise that balance. Prudence must not operate as a one-way ratchet, where contribution levels can only ever rise or remain elevated, regardless of changing circumstances. Instead, prudence must be weighed alongside councils’ duties to local taxpayers, while continuing to protect and secure the benefits of scheme members. In short, this change does not undermine member security but simply ensures that assessments of affordability reflect the real-world constraints under which councils operate rather than an abstract assumption of unlimited state backing. The law already allows interim reviews in principle but, in practice, the system makes them inaccessible. This proposed new clause would close the gap, clarify the rules, improve transparency, introduce consistency and strengthen accountability, ensuring that interim reviews function as a real safeguard rather than a theoretical one.