Local Government Pension Scheme (LGPS) funds could be forced to transfer all “listed” assets into their pools by March 2025 as part of government plans to move “further and faster” on pooling.
This week’s Budget Report (the Red Book) confirmed that a forthcoming government consultation will set direction for the future structure for local government pension funds. Ultimately, this could lead to rationalisation of the LGPS, with the current eight pools reduced in number.
According to the report, the result might be a “smaller number of pools [each] in excess of £50bn” to gain the benefits of scale.
“While pooling has delivered substantial benefits so far, progress needs to accelerate to deliver, and the government stands ready to take further action if needed,” the report stated.
However, Nigel Peaple, director of policy and advocacy for the Pensions and Lifetime Savings Association, indicated that it was the wrong time for rationalisation.
“As it is only five years since the first pooling reform which set up eight investment pools to serve the around 90 local authority pension funds in England and Wales, we think a further large-scale reform would be unlikely to achieve very much at this time,” he said.
Each pool is at a different stage of that journey, so there is so much potential to accelerate the transfer and concentration of assets to drive further cost savings, benefit from scaling up and collaborate between funds.
Accelerating asset transfer
Chris Rule, CEO of LPPI, one of the smallest pools but with a high percentage of assets transferred, said that transitioning assets was a “core tenet” of the pooling initiative.
“Each pool is at a different stage of that journey, so there is so much potential to accelerate the transfer and concentration of assets to drive further cost savings, benefit from scaling up and collaborate between funds for the benefit of millions of pension members,” he added.
“LPPI has always operated under a fully pooled model, and this has paid dividends in terms of strong investment performance and significant cost savings. This consultation is long overdue and we look forward to providing our views on any proposals put forward.”
Raised expectations
Iain Campbell, senior investment consultant at Hymans Robertson, said that the March 2025 deadline to transfer assets represented a “step-up in expectations” from the government.
“We welcome further details on this in the forthcoming consultation, such as what is classed as ‘listed’ as well as how passive assets will be considered,” he added.
Campbell suggested that the move to a smaller number of pools was an “important development” in the government’s plans for pooling. He called for more detail on timescales, approach and expectations for cost savings.
The Budget report confirmed that the government will also consult on requiring LGPS funds to consider investment opportunities in illiquid assets such as venture and growth capital. It suggested that this could “unlock some of the £364bn of LGPS assets into long-term productive assets”.
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