To ask Her Majesty’s Government whether they intend to introduce any safeguards as part of their reform of the local government pension scheme (LGPS) in order to ensure that British wealth funds conduct their investment strategies solely in the interest of their LGPS members.
My Lords, the 90 pension fund authorities in England and Wales will continue to be responsible for determining their own investment strategy and for making strategic asset allocation decisions. Those responsible for making investment decisions must take proper investment advice and comply with their legal duty to act in the best long-term interests of scheme beneficiaries.
My Lords, I thank the Minister for that Answer. However, does she understand that whatever the merits of the pooling and merging system between local authority funds, there is anxiety because of the way that the Government have designated them as British wealth assets, and a fear that they may be advised to move in directions which reflect the priorities of the Treasury rather than those of the members? In particular, why do she and the Government not accept the advice of the LGA and the Law Commission that this provision should be written specifically into the new regulations covering the combined schemes, particularly the reference to Article 18 of the IORP directive, which underlines the need to manage these schemes, and their investments, in the interests of their members and nobody else?
My Lords, the funds have a duty to manage the schemes for their scheme beneficiaries—that is their first duty. I understand why the noble Lord has concerns at the pool level. However, the strategic direction will be set at the funding level and carried out at the pool level.
My Lords, will the wealth funds have the opportunity to prioritise investment outside London, where it is much needed? Will she also comment on nation-wide representation on the governing boards of wealth funds?
My Lords, schemes should make decisions in the best interests of the beneficiaries, so wherever those decisions are best made is where those schemes should direct their strategies. As the noble Baroness will know, beneficiaries are now represented on those boards at local level. Because those boards represent the beneficiaries and set the strategic direction, the scheme beneficiaries are protected all the way along.
My Lords, the Norwegian sovereign wealth fund, which is worth £850 billion, clearly believes that it has a role in looking at such issues as the role of remuneration committees in enterprises. Does the noble Baroness agree that large wealth funds have a number of responsibilities in society?
I certainly agree with the noble Lord. In terms of pooling pension funds, we now have a huge opportunity in this country to do what other countries do so successfully, particularly Canada—namely, pool resources to invest in infrastructure.
My Lords, will my noble friend explain whether the proposed changes result from cost-saving measures to ensure proper investment or a response to our obligations under a European directive?
My noble friend raises an important point because pooling certainly has the potential to make the management of our pension funds more efficient. However, we also have to look at how we can maximise some of the returns for beneficiaries.
My Lords, can the Minister categorically deny that the Treasury will try to influence these decisions? That is the concern. What will be the Treasury’s role in investment strategy?
I can categorically say that the investment strategy will be made at the fund level, which is the local level. As far as I know, the Treasury has no will to start meddling in local decisions as regards directing at pool level. However, the Secretary of State may intervene—that was one of the concerns—where funds have been managed poorly.