The UK government is facing a legal challenge over its veto on local authority pension fund investments.

The government says these funds, steered by local councillors and worth more than £200bn (€238bn) in total, must follow national foreign policy.

The Palestine Solidarity Campaign (PSC), the organisation making the challenge, is fearful the government’s veto will curtail pension funds’ ability to act in their members’ best interest and has applied for a judicial review of the powers.

The trade union Unison has previously called on its 1m members in local government to campaign for divestment from companies involved in the Israeli occupation of the West Bank.

The government says a judicial review is unnecessary and that the powers exist to prevent local authorities from pursuing a political, non-financial agenda with members’ savings.

The PSC’s challenge argues that the UK government veto could contravene EU law, which prohibits governments from directing where pension schemes put their money.

The UK government claims local authority pension funds are exempt from this law because town hall workers, unlike private-sector pension schemes, are guaranteed retirement benefits regardless of whether their savings in the pension fund do well or badly.

Government minister Marcus Jones, speaking in Parliament in November,  said benefits were guaranteed by statute.

This claim is repeated in a legal response from the government to the PSC’s lawyers.

But the claim is disputed.

The Scheme Advisory Board, which monitors the entire £200bn Local Government Pension Scheme, has legal opinion that there is no statutory guarantee from central government.

The PSC has now hired the same lawyer who gave that opinion, Nigel Giffin.

Peter Wallach, head of the Merseyside Pension Fund, one of the largest in the Local Government Pension Scheme, said: “There is no legal underpin to LGPS benefits. It is purely an assumption.

“I do not worry overly about this, but, at the same time, we cannot dismiss the possibility that this could be an issue at some point in the future.”

Cllr Kieran Quinn, chair of the UK Local Authority Pension Fund Forum and executive leader of Tameside Borough Council, is also fairly relaxed about the intervention power.

In the January issue of IPE magazine, Quinn writes: “While I agree there is a greater scope for central intervention in theory, I remain relaxed about what this will mean in practice.

“Pension funds can often do better than the likes of the Foreign Office in both identifying investment opportunities abroad and realising when it is prudent to step back, and, in my experience, the people who are the quickest to accuse pension funds of playing politics are almost always unable to provide specific examples to support their argument.”

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