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City Regions: Pension Funds

Volume 769: debated on Tuesday 23 February 2016


Asked by

To ask Her Majesty’s Government what action they are taking to encourage the new City Regions to invest the pension funds they hold in infrastructure developments that will assist in the economic recovery.

My Lords, the Chancellor has announced that local government pension scheme assets worth around £180 billion will be pooled into six British wealth funds to drive investment in infrastructure and local growth. We issued guidance alongside the Autumn Statement that made it clear that authorities should be more ambitious in their infrastructure investment and compare themselves with the example set by the leading global pension fund investors.

I thank the Minister for her Answer. The Greater Manchester Combined Authority is a leader in pooling funds and moving forward. In fact, its pension fund is developing the housing market. It is also drawing up a spatial strategy for planning for Greater Manchester that will deliver 10,000 homes a year over the next 20 years, and that is to be applauded. Can the Minister say why the Department for Communities and Local Government is threatening each and every local authority in Greater Manchester by saying that, unless they draw up their own local plans, it will withhold the new homes bonus fee? The combined authority does what it says on the tin: it is combined. With every authority doing that, it will be done 10 times. I would like an answer to that question.

I totally concur with the noble Lord that the GM pension fund performs very well and meets the needs of its members almost 100%. I am not surprised that the noble Lord has brought this up, given the way Greater Manchester has thought over the last few years, certainly in terms of its ambitions for strategic housing. I would be very happy to meet both the noble Lord and members of the combined authority to see what progress we can make in this area.

My Lords, given the disparity between some regions—for example, the north-east compared with the south-east—should not the Government incentivise not local authority pension funds but general pension funds to invest in infrastructure in the areas that have the least resources and the greatest needs?

I do not think the noble Lord is wrong there. In encouraging local authorities to pool their pension funds, the Chancellor is also encouraging them to make efficiencies in fund management, for example, to maximise what can be drawn from those pension funds.

My Lords, does my noble friend not agree that the first duty of pension funds is to pensioners, both present and future?

My Lords, the big legal changes to pension death benefits which were introduced by the Chancellor and took place last April have had a perverse effect, in that it is much more tax efficient if someone dies under the age of 75 than just over the age of 75. The amount is tax-free if someone is under 75, but half the pension savings are lost if they are over 75. That is the result of rushed and thoughtless action by the Chancellor. Therefore, can we have an assurance that before he abolishes the tax-free lump sum, as mentioned in this week’s Sunday Times, he will think slowly rather than fast and recklessly?

My Lords, this Question is about local government pension funds and I cannot comment on a policy that has not been announced. However, I concur that if my husband died before reaching pension age, I would be a lot better off.

My Lords, following the recent comments of Sir Michael Wilshaw, do the Government consider that the educational infrastructure in the new city regions needs at least as much attention as the physical infrastructure? What are the Government going to do to ensure that the educational offer is as good as the physical offer in these areas?

My Lords, all these things go hand in hand: infrastructure, education, and the infrastructure and provision of health services all make for the health and prosperity of the city region.

My Lords, have the Government considered how European and international cities raise money for infrastructure? They are empowered to borrow money on the private market and to raise taxes for revenue schemes in order to pay those off in the long term. Have the Government considered doing that or are we still condemned to queue up behind each other at the Department for Transport, waiting to hear what it has chosen for cities in the way of infrastructure?

The noble Baroness raises what is at the heart of the Government’s encouragement here. There are cities, globally and in Europe, that are much more culturally disposed to using their pension funds for investing in infrastructure. The Ontario teachers’ fund is a very good example of a fund that invests 6% per annum in infrastructure projects.

My Lords, following what was an accurate answer to the noble Lord, Lord Tugendhat, what arrangements are made when various pension funds pool resources to ensure that the individual potential beneficiaries of the funds are looked after?

My Lords, the noble Lord makes a vital point. The job of a pension fund, first and foremost, is to maximise the returns for its investors—there is absolutely no doubt about that. However, in pooling the resources of a pension fund, for example, you could go to fewer fund managers, which cost a lot of money relatively, and therefore have more efficient pension funds than perhaps we have now in local authority schemes.

My Lords, while trembling for the future of the noble Baroness’s husband, could I revert to the question I asked, as I do not think she quite understood my point? Will the Government consider incentivising non-local authority pension funds to invest in those areas that need the most economic investment?

My Lords, I cannot speak for future government thinking, but to maximise the potential of pension funds, particularly where those funds are healthy, it would make sense that that is a very good way to go.

And I just want to tell the House that my husband is very well and healthy.