Lords defeat government on LGPS powers ahead of key DC mandation vote
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The House of Lords has voted to amend the pension schemes bill to prevent the government from telling Local Government Pension Scheme pools how to invest. Later this week, they could also defeat the government on mandation powers in relation to defined contribution schemes.
On Monday, the Upper House voted for three amendments, including one that would prevent the secretary of state from mandating investment in specific assets, asset classes or locations.
The bill as drafted gives wide-ranging power to ministers to direct how LGPS pools and DC multi-employer schemes invest. Pensions minister Torsten Bell had removed a power to directly mandate LGPS investments but kept a clause that allows the government to intervene if it disagrees with the “manner” in which an asset pool invests. The government also wants funds to make local investments.
This kind of state intervention is unpopular in the Lords, where a majority sent a signal on Monday that they think ministers are going too far.
On Monday, the Upper House voted for three amendments, including one that would prevent the secretary of state from mandating investment in specific assets, asset classes or locations.
The bill as drafted gives wide-ranging power to ministers to direct how LGPS pools and DC multi-employer schemes invest. Pensions minister Torsten Bell had removed a power to directly mandate LGPS investments but kept a clause that allows the government to intervene if it disagrees with the “manner” in which an asset pool invests. The government also wants funds to make local investments.
This kind of state intervention is unpopular in the Lords, where a majority sent a signal on Monday that they think ministers are going too far.
Government could be defeated in DC mandation vote
A further key Lords vote on mandation will happen on Thursday, when DC schemes will be discussed. Baroness Ros Altmann, a former pensions minister, said there is “strong cross-party consensus” about this issue.
Last week, Bell said the government would “put beyond doubt” that the reserve power to mandate investments will be limited to the Mansion House Accord, where providers and master trusts have pledged to allocate 10% of their default funds to productive finance, half of which in the UK.
However, “the government seems not to have laid any amendments at all, despite suggesting it would do so”, said Altmann. “Therefore, the full dangers we have warned of [remain], with government being able to direct investment into high risk assets that they dictate.”
She added: “In the Lords, we're determined to try to prevent this government overreach and try to protect members and preserve the primacy [of] trustee decision making in choosing specific investments and wrappers.”
Once through the Lords, the bill will return to the Commons, where the government has a large majority. It may then enter the ‘ping pong stage’, when it changes rapidly between the Commons and Lords until the wording of the bill is agreed, potentially with pressure being put on the Lords until compromises are made, so the amendments voted in by House of Lords are unlikely to remain in the bill in their current form.
Mansion House Accord could cease to be voluntary
Even if ministers limit mandation powers for DC schemes to the commitments made by investors in the Mansion House Accord, some see this as less than ideal. Speaking at the Association of Member Nominated Trustees conference on Tuesday, LCP partner and ex-pensions minister Sir Steve Webb pointed out that the Mansion House Accord is a voluntary commitment.
He said: “They agreed to commit to try and achieve what the government wants. And then the government says, well, if you don't, we'll make you anyway. So why would anybody ever enter into a voluntary agreement with this government ever again?”
