Local Government Pension Scheme | government amends “unlawful” statutory investment guidance pending its appeal against High Court ruling

Written on 24 Jul 2017

In a judgment given on 22 June 2017, the High Court ruled that the Secretary of State for Communities and Local Government acted unlawfully by issuing guidance which restricted the 89 Local Government Pension Scheme funds in England and Wales from adopting investment strategies which pursue boycotts, divestment and sanctions against foreign nations or UK defence industries, or are contrary to government policy.

What was the dispute about?

We previously reported on the introduction of new LGPS investment regulations and guidance on preparing and maintaining an investment strategy statement, which came into force in November 2016. This paved the way for LGPS administering authorities in England and Wales to comply with government policy on the creation of regional asset pooling vehicles. Part of the guidance stated that administering authorities must not:

…. [use] pension policies to pursue boycotts, divestment and sanctions [“BDS”] against foreign nations and UK defence industries…other than where formal legal sanctions, embargoes and restrictions have been put in place by the Government.”; or

pursue policies that are contrary to UK foreign policy or UK defence policy“.

A challenge was brought by the Palestine Solidarity Campaign, which describes itself as a community of people working together for peace, equality, and justice and against racism, occupation, and colonisation. The challenge was on the basis that the Secretary of State acted unlawfully in issuing this part of the guidance, on the following judicial review grounds:

  1. The disputed part of the guidance falls outside the proper scope of the Secretary of State’s powers because it was not issued for pensions purposes pursuant to the Public Service Pensions Act 2013, but rather was for foreign affairs and defence purposes.
  2. The guidance is unlawful because it is materially unclear or ambiguous or silent as to important circumstances.
  3. The guidance is contrary to Article 18(4) of the European Directive on the Activities and Supervision of Institutions for Occupational Pension Provision (also known as the IORP directive) as it imposes a form of prior governmental approval of the investment decisions made by administering authorities.

Decision of the High Court

The High Court found that the disputed part of the guidance was unlawful on the first of the above grounds. This was because the preamble to the Public Service Pensions Act 2013 makes it clear that the Act is to make provision for public service pension schemes and for connected purposes. In the absence of any provision to the contrary, the regulation-making powers conferred by the legislation can only be exercised for pensions purposes. By including in the guidance non-financial factors concerned with foreign and defence matters, the Secretary of State had acted for an unauthorised purpose and therefore unlawfully. The other grounds were dismissed, and the conclusions reached by the Court had nothing to do with the political merits of the claimant’s or the Secretary of State’s position on defence or foreign affairs.

Following the decision, DCLG has issued a revised version of the guidance, dated July 2017, which now excludes the disputed section. DCLG Parliamentary Under-Secretary of State, Lord Bourne, has confirmed that the government is planning to appeal the judgment. We will monitor any appeal proceedings and report on the result when it becomes known.