Luton Borough Council was prosecuted by the HSE late last year following an incident at a high school in which an assistant headteacher was attacked by a pupil and left with life-changing injuries.
In our current situation, when January 2020 seems like years ago, November 2016 seems like a date from a different millennium! However, it was in November 2016 that guidance pertaining to the investment of Local Government Pension Scheme Funds came into force which has been the subject of a recent decision in the Supreme Court.
The Public Service Pensions Act 2013 gave the Secretary of State power to issue regulations and guidance establishing pension schemes for local government workers. Regulation 7 of the Local Government Pension Scheme (Management and Investment of Funds) Regulations 2016 provided that all LGPS funds must have an investment strategy which accorded with the accompanying guidance (“the Guidance”). Both the Regulations and the Guidance came into force in November 2016. The Guidance provided that within this investment strategy, schemes could take into account non-financial considerations where;
1) they would not involve a significant risk of financial detriment; and
2) there was good reason to think that the members of the scheme would support the inclusion of such considerations.
The issue which has proved so contentious was the following sentences which stated that "using pension policies to pursue boycotts, divestment and sanctions against foreign nations and UK defence industries are inappropriate, other than where formal legal sanctions, embargoes and restrictions have been put in place by the Government….” and that local authorities were bound not to "pursue policies that are contrary to UK foreign policy or UK defence policy".
Judicial Review to the Supreme Court
The Palestine Solidarity Campaign is a group dedicated to campaigning in support of the rights of the Palestinian people. A member of the campaign’s executive committee is also an employee of a local authority and a member of the Local Government Pension Scheme. The campaigners argued that the Secretary of State had overreached their powers in including the above sentences regarding investments in their guidance; the Guidance was, in their eyes, unlawful. At Judicial Review, the Judge upheld the claim finding the Guidance unlawful. This was then rejected by the Court of Appeal, and so the Palestine Solidarity Campaign appealed to the Supreme Court. The case was heard late last year and the decision published at the very end of last month.
Supreme Court decision
The Supreme Court allowed the campaigners’ claim and found the Guidance unlawful. Their Lordships noted that the wording of the Regulations required that the Guidance identify non-financial factors which should be taken into account in relation to pension fund investments. They ruled that these sentences in the Guidance had done something completely different. These sentences were, in their Lordship’s opinions, an attempt by the Government to enforce their own foreign policy and should have no place in the Guidance. There was no power given to the Secretary of State to direct what investments should be made by pension funds. This was because the monies within the funds were not public money but rather the money of individuals who had paid into the scheme.
It is worth noting that two members of the Supreme Court disagreed with this view and held that the Guidance reflected the appropriate role of the Government within a public pension scheme.
Following this case, it is clear that the Government will not be able to enforce its political position through directing pensions investments. The sentences suggesting that this may have been the case will now be removed from the Guidance. However, it is key to note that Regulation 7 requiring the formulation of an investment strategy remains unchanged, as does the Guidance noting that investment strategies can take account of non-financial considerations provided they meet the two requirements of not causing significant detriment to the financial performance of the fund, and where there was good reason to think scheme members would support them. This latter requirement could be more problematic than the simple wording might suggest. To take the case outlined above, the views of the executive member of the campaign group and the non-financial considerations that individual might support could be wholly different to the non-financial considerations supported by other members. We would, therefore, recommend that funds give some considered thought to the potential risk of challenges before operating any controversial investment strategies.
For more information
Please contact Doug Mullen.
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