Westminster loses battle over pension fund investments

The UK government lost a high profile court case on Wednesday over whether local council pension schemes can make investment decisions that go against the country’s foreign or defence policy.

The UK’s Supreme Court ruled that the government’s investment strategy guidance — which bans boycotts or sanctions against foreign countries or defence companies — was unlawful. 

The legal challenge, bought by the Palestine Solidarity Campaign, which supports the rights of Palestinian people, had revolved around government guidance that was issued in 2016 to the local government pension scheme about how funds are invested.

The guidance says local council pension schemes should not use pension policies to pursue boycotts, sanctions or divestments against foreign nations or UK defence industries in a move that was criticised at the time by pension officials as amounting to political interference. It was issued to 89 local council pension funds in England and Wales, which provide pension benefits for 5m former and current staff.

The guidance, issued by the Department for Communities and Local Government, does allow some ethical investment decisions in areas such as health and the environment, but it does not permit pension funds to boycott companies on the grounds that they trade on products produced in the Palestinian-occupied territories, for example.

On Wednesday the Supreme Court ruled by a three to two majority that the government’s powers could not stop pension fund administrators from making such investments and so parts of its guidance were unlawful.

The UK government had argued in the court case that the guidance had been put in place to ensure that national decisions on defence and foreign policy were not undermined by local boycotts on non-pension grounds. 

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Robert Carnwath, one of the Supreme Court justices, said that investment decisions by the pension funds were “judgments to be made by the administering authority not by the secretary of state” and ruled the guidance was unlawful.

Jamie Potter, partner at law firm Bindmans, which acted for the Palestine Solidarity Campaign, said: “We welcome the Supreme Court’s confirmation that the government went too far in imposing its political opinions on to the management of the money of LGPS [Local Government Pension Scheme] members.”

Ben Jamal, director of the Palestine Solidarity Campaign, called the ruling a “victory for local democracy” and said that “locally run bodies should be able to make principled decisions about investing funds ethically without interference from central government”.



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