The Government’s consultation seeking views on Local Government Pension Scheme (LGPS) investments was launched earlier in the summer (on 11 July) and closes next week. This forms part of the Chancellor’s Mansion House reforms, which focus on consolidation for both public and private sector schemes.
Aims and objectives
The consultation seeks views on five main areas, one of which is in relation to proposals to accelerate the consolidation of LGPS assets and expand pooling. It suggests setting a deadline for all LGPS funds to transfer their listed assets (as a minimum) into a LGPS pool by 31 March 2025. This would tie in with the end of the current local fund valuation period.
If the proposals are taken forward, the consultation suggests that:
- transition of all assets should be considered in the timeframe, especially given that pooling of illiquid investments may offer the greatest opportunities for reduced savings and higher returns;
- funds would need to work with their pool to ensure all available opportunities have been considered;
- a detailed rationale for each asset remaining outside the pool would need to be provided in the Investment Strategy Statement if the asset is not intended to be pooled by 2025 (this would include value for money considerations).
The Government’s objective here is clear – it wants to see a transition towards fewer pools to maximise economies of scale, while cutting costs.
Administering Authorities will be expected to act in accordance with statutory guidance once issued and the Government will consider action if progress is not seen by making a direction to compel funds to act. The Secretary of State’s powers to make directions to a fund where that fund is in breach of statutory guidance (under regulation 8 of the Local Government Pension Scheme (Management and Investment of Funds) Regulations 2016) were previously unused.
Examples of activities which could result in such a direction are:
- withdrawing pool membership;
- failing to transition assets in line with the timetable;
- failing to provide adequate justification for non-pooled assets.
The consultation also notes the Secretary of State’s powers under section 3(2)(a) and Schedule 3 of the Public Service Pensions Act 2013 to make regulations on the administration, management and winding-up of LGPS pension funds (subject to consultation and the consent of HM Treasury).
The consultation closes next week (2 October 2023) and we will write further with our observations. However, one theme of the responses so far is that there does need to be recognition that further change and acceleration of pooling will need additional resource and this should not be underestimated. We will await the Government's response with interest.
Increased scale would allow the pools to deliver further savings and efficiencies, including through negotiating lower fees from external investment managers and service providers, and developing internal capacity for investment management. Increased scale would also enable the pools to invest in larger projects which would help the LGPS to take advantage of attractive opportunities in alternative assets. https://www.gov.uk/government/consultations/local-government-pension-scheme-england-and-wales-next-steps-on-investments/local-government-pension-scheme-england-and-wales-next-steps-on-investments