LGPS – defeated in the jaws of victory

I very much doubt that when Roger Phillips of LGPS Advisory Board promoted its  report on the year ending April 2022, he would meet with response from the FT’s Jo Cumbo.

If you publish numbers that are 15 months out of date, you are likely to have your numbers ignored, unless they tell a story that is relevant today.

The relevant story is that as the LGPS pools and funds have focussed on more expensive asset classes, the amounts they pay to those managing those assets has increased

On key metrics that fiduciaries can control, transaction and operational costs, the message is good. But on fees that are created because the investment have done well – as private markets did in 2021 – they have no control – because fees are aligned with performance.

It’s a nice problem to have and the overall value to the funds – which feeds through to greater security to sponsors and members, has meant that LGPS has significantly outperformed DB schemes in the private sector.

This has been because of the impact of finding return outside of listed markets – return which costs more to source.


LGPS does not operate in a vacuum

The nation should be proud of its Local Government Pension Funds for their performance over the past five years which has seen them move from being a burden to a potential asset to the tax-payer.

But LGPS continues to attract negative comment for not controlling its costs, rather than promoting its value.

Publishing the 2021/22 annual report 15 months later (and on the day that Strathclyde published its 2022/23 report , is simply holding a hostage to fortune.

LGPS does not operate in a vacuum. It is compared by the ONS to private sector schemes

The ONS shows LGPS is consistently delivering value. But this message is confined to the ONS report and a couple of blogs

One can draw one of two conclusions

Either the LGPS does not care what the outside world thinks of it

Or the LGPS is lacking any form of commercial marketing.

My belief, having spent two days in the company of its senior management, is that it is a combination of the two.

The LGPS is the one unadulterated good news story in pensions today. There are one or two who realise this and champion its work (Debbie Fielder and Philip Latham of Clwyd being two), but for the most part, LGPS seems to be talking to itself not the wider world.

So long as it is not getting its good news stories out, it will be judged on its newsworthy stories, of which the cost of investing in private markets is the obvious example.

The immediate relevance of the numbers quoted by Josephine Cumbo is that the cost of “doing an LGPS” for private sector workplace pension schemes will be perceived to be prohibitive to funders of GPPS and Master Trusts who are bought on headline price.

But the fundamental message that we should be taking away from the funding position of LGPS – from Strathclyde, from the ONS numbers and from the many other schemes whose 2023 accounts haven’t reached me, is that investing in private markets has worked and is working.

Clearly you need scale and at £350 bn , LGPS is moving to the kind of scale that could rank it as one of the world’s great funded pension schemes. It needs to move carefully as it considers further consolidation of its pooling. but it is already showing , through the excellence of pools such as Border to Coast, that it can show the private sector how scale can bring lasting benefit

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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2 Responses to LGPS – defeated in the jaws of victory

  1. John Mather says:

    Would it be a good idea to turn pension funds into banks?

    There are no U.K. companies capitalised at £369bn

    As of September 2021, the market values of the top ten listed U.K. companies are as follows:

    1. AstraZeneca PLC – £122.6 billion
    2. BHP Group PLC – £122.2 billion
    3. BP PLC – £73.9 billion
    4. British American Tobacco PLC – £61.7 billion
    5. Diageo PLC – £70.2 billion
    6. GlaxoSmithKline PLC – £71.2 billion
    7. HSBC Holdings PLC – £92.2 billion
    8. Rio Tinto PLC – £88.7 billion
    9. Royal Dutch Shell PLC – £114.7 billion
    10. Unilever PLC – £111.2 billion

    As of September 2021, the market capitalization of the top ten U.K. banks is as follows:

    1. HSBC Holdings PLC – £92.2 billion
    2. Lloyds Banking Group PLC – £32.7 billion
    3. Barclays PLC – £32.6 billion
    4. Royal Bank of Scotland Group PLC (NatWest Group) – £29.4 billion
    5. Standard Chartered PLC – £20.9 billion
    6. Santander UK PLC – £18.2 billion
    7. Nationwide Building Society – Not publicly traded
    8. Virgin Money UK PLC – £2.9 billion
    9. CYBG PLC (Clydesdale and Yorkshire Bank) – £2.4 billion
    10. Metro Bank PLC – £1.1 billion

    Did any of these have a return greater than 8%

  2. jnamdoc says:

    Those involved with the running of pension schemes overwhelming become passionately engaged with the delivery of the pension promises for their members. It gets into the blood, and on the trustee and delivery side (ie those who pay the pensions) it becomes a vocation, not a a career. So be it with LGPS, too.

    Go back 10-15 years and private DB scheme performance and LGPS performance and asset allocations were not dissimilar. LGPS schemes have flourished with open membership. At times they have lost sight of their purpose and the long term perspective, increases contribution rates to unaffordable levels on the whim of the private sector consultants dragging them to gilt induced discount rates. But overall their governance model has survived and they have resisted.

    Compare that to private sector DB schemes, with decimated open membership yet many in the sector proudly defending the (now accepted) loss of £600bn of scheme asset last year on the alter of bank/consultant led LDI.

    What’s been the difference over that 15 years or so….?

    …..TPR ?

    Keep TPR away from LGPS, please.

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