To ask His Majesty’s Government what changes there will be in the new local government pension fund guidance in relation to (1) boycott or divestment activity, and (2) interaction with funds’ fiduciary duties.

My Lords, the Government’s position on these matters remains unchanged from the 2016 guidance, which was amended in 2017. Decisions on boycotts and divestment are matters of UK foreign policy and are for central government, not local authorities. It is not appropriate for local authorities to adopt investment policies that differ from UK government sanctions or foreign policy. Funds’ fiduciary duties are unchanged: they remain responsible for setting high-level investment strategies, the key driver of investment returns.

I thank the Minister for her Answer. In that case, will the Government consider changing the potentially contradictory wording in the draft guidance sent to Local Government Pension Scheme administering authorities for a closed consultation on taking non-financial factors into account in their responsible investment, in case it could be exploited to drive divestment? Will she meet me and other people interested in this matter?

On the last point, I listened very carefully to the noble Baroness’s contributions on the pensions Bill. If she came to meet me, I would treat it as a teach-in on pensions, so I have no problems with having a meeting. The Government are finalising the investment strategy statement guidance in the light of comments received on the draft circulated for comment, as she said, in December 2025. We are carefully considering all feedback received before publishing the final guidance. We absolutely do not want this to be contradictory. We want to make sure that the guidance is crystal-clear because our position remains unchanged: it is not appropriate for local authorities to adopt investment policies that go beyond, or differ from, UK government sanctions or foreign policy positions. We want to make that clear and we will endeavour to do so in the guidance.

My Lords, this is about local government pension funds and we are discussing guidance; the Minister has just talked about an instruction. Does she recognise that the autonomy of local government ought to be an important principle that we all hold to and that we need to be very careful about how much we limit it? In this respect, including in foreign policy, we are limiting local government autonomy more than happens in most comparable democracies, including the United States.

The Fit for the Future reforms do not seek to undermine the fiduciary duty of local pension funds in any way. The responsibility to set investment strategies—the key driver of investment returns—remains with the funds, making sure that they retain local accountability. New LGPS regulations will continue to require administering authorities to include preferences on environmental, social and governance factors in their investment strategies.

My Lords, I congratulate the Government on planning to reintroduce the pension scheme for local councillors, which was abolished in 2015 by the noble Lord, Lord Pickles, when he was the Secretary of State for Communities and Local Government in the other place. Thousands of councillors lost their pensions. Does my noble friend the Minister agree with me that the noble Lord should apologise to all those councillors, of all political parties, for the loss of their pensions?

We took a different view from the previous policy, and I think that was the right thing to do. Many local councillors will potentially give up many hours of their working life to undertake their duties. It is absolutely right that they should be eligible for the Local Government Pension Scheme.

My Lords, the noble Baroness, Lady Sherlock, made valiant attempts to provide clarity on the issue of fiduciary duty and systemic risk during the passage of the Pension Schemes Bill. She was defeated by the combined opposition, for reasons I still do not understand, but the Government are now saying, I understand, that they are going to take action in the coming months or years. Will the Minister do her best to make sure that it is months rather than years?

I am always trying to make sure that things happen in months rather than years. It is not as easy as I might have thought it was, but we do endeavour to do that. Regulations on governance, pooling and investment will be laid at the end of this month. They are expected to enter into force at the end of June. These will be made using powers under the Pension Schemes Act 2026, which, as we all know, received Royal Assent on 29 April this year. Guidance on governance, investment strategy statements and pooling will be published in advance of the regulations entering into force.

My Lords, what assessment have the Government made of so-called lifestyling pension strategies, also known as target date or pathway funds, where savers are automatically moved out of growth assets and into gilts and bonds as they approach retirement, often without actively choosing to do so or fully understanding the impact of the switch?

That is very important, and the new system is partly to make sure that the fiduciary duty is undertaken by scheme managers and by the democratic oversight that these schemes have. I hope that all those involved in the Local Government Pension Scheme will take that responsibility as seriously as they always have. I was on a pensions committee for many years. We always took that very seriously because the whole purpose of the scheme is to make sure that people get what they are entitled to once they retire.

My Lords, can the Minister confirm that any new guidance in this context will approve the principles stated by the Law Commission in 2014 and upheld by the Supreme Court in 2020? Those principles assert that local government investment decisions

“must not involve a risk of significant financial detriment to the fund”.

I cannot comment specifically on the Law Commission principles, but I will write to the noble Lord on that. However, the LGPS, as a public sector scheme, is subject to particularly high expectations on responsible investment—as the noble Lord indicated—and must maintain the highest standards in managing financial risk while retaining local control and displaying transparency in accountability and investment decisions. Therefore, I think the guardrails are in place, but I will come back to him on the specific issue of the Law Commission recommendations.

My Lords, the draft guidance includes a paragraph 5.6, which allows schemes, in effect, to accept a lower rate of return for “ESG-related goals”. Does the Minister agree with me that there is a real danger that this could be used for political purposes, as has been mentioned before, as a mechanism to boycott and divest to the detriment of pensioners, despite the Government’s best intentions in this regard?

I hope I made it very clear in my earlier Answer that the Government’s position is crystal-clear on this: that the issues around sanctions are for the UK Government to determine, and pension funds should not deviate from that. However, it is important that, outside of that, we give as wide a remit as possible to local authorities to work with their pension funds to make the decisions that are right for their local areas.