Political row brewing over UK pension pooling proposals amid ethical investment fears

Political concerns have been raised about the UK government’s plans to introduce regulation to clarify that local government pension schemes should not pursue their own divestments, boycotts or sanctions – amid a push to create giant pooled funds out of the country’s 89 local authority pension funds.

Opposition Labour MP Richard Burden plans to seek a parliamentary debate on the issue, arguing the move could damage the funds’ independence. Speaking to Responsible Investor, Burden said: “The proposals to change both pensions and procurement investment regulations, are bluntly crass and clearly contradict not only Foreign Office advice and the government’s own devolution agenda of giving local councils the right to make their own decisions.

“The proposals will prevent councils pursuing goals like community cohesion, environmental sustainability and human rights in line with the best practice of the progressive private sector. It’s called corporate social responsibility. The right ethical investment decisions in the long term are often also the right business decisions.”

Burden, who also chairs the British-Palestine All Party Parliamentary Group, highlighted that the changes had received virtually no parliamentary scrutiny.

“So far, the government have refused to give any real answers when I and my colleagues have tabled parliamentary questions.” He said members across all parties share the concerns, adding: “We will be doing all we can to challenge ministers on these silly proposals.”

And leader of the Opposition Jeremy Corbyn has waded into the debate. He told the Independent the move was “an attack on local democracy”.

Last month, Shadow Leader of the House, Chris Bryant MP, questioned Leader of the House Chris Grayling on the matter. RI also understands that a number of local government pension schemes have concerns.

The Financial Times has reported that more than 12,000 people have signed a petition calling on the UK government to abandon the proposals that are interpreted as political interference in how pension funds invest. The group believes the change is intended to stop politically motivated divestment campaigns against UK defence companies and countries such as Israel.Kieran Quinn, chairman of the Local Authority Pension Fund Forum (LAPFF), a group of 64 public pension funds with combined assets of £160bn, told the FT: “There is significant annoyance [that] the government is pursuing this agenda and anger [that] it does not appear to be listening.

“If we have to check every week what the government’s foreign policy is, it will limit the nimbleness of [pension] plans to make speedy investment decisions. It is not just the principle of it, but the practical impact. This is a daft [policy].” UK union Unison has also been critical, saying while it is not opposed to funds coming together to invest, it believes that government should not be able to direct where assets are invested. Unison also says that union-nominated representatives should be appointed to the new pool governance structure.

A Department for Communities and Local Government spokesman said: “Councils should not be using pensions and procurement policies to pursue their own boycotts and sanctions.”

The UK government is seeking to introduce the regulation as part of its plan to pool around £193bn (€274bn) in local government pension scheme assets to create six pooled funds, with at least £25bn of scheme assets each, to boost infrastructure development. It has been reported that these new pools will be expected to invest 25% of their assets in infrastructure.

As part of the process, schemes will come forward with initial proposals for pooling their funds this month, which includes setting out ESG policies. Alongside this, the government has said it will clarify that non-financial considerations should “not result in policies which pursue municipal boycotts, divestments and sanctions, unless put in place by the government”.

The funds must submit initial proposals for pooling their assets this week, by February 19. Completed submissions are due by July 15.

Public Finance reports that a number of pools are being developed, including a £35bn grouping of eight LGPS schemes across the Midlands and the ACCESS (A Collaboration of Central, Eastern and Southern Shires) including Cambridgeshire, Essex, the Isle of Wight, Kent, Norfolk, Northamptonshire, Suffolk and West Sussex.

However, there is still a level of uncertainty around the government’s proposals, including what happens if a pool applications doesn’t meet the size criteria and the governance arrangements of the pooled funds.