The Local Government Pension Scheme is (in funding terms) in a good place. By swerving LDI and investing in growth assets, it has achieved funding levels that could not have been imagined only four or five years ago. I reported on this summer’s PLSA LGPS conference that it “only wanted to be left alone” .
But this is not the intention of the new Labour Government. In a swingeing attach delivered when announcing its Workplace Pension Review, the Government reminded LGPS that its value came from the contributions of its members..
The Local Government Pension Scheme (LGPS) in England and Wales is the seventh largest pension fund in the world, managing £360 billion worth of assets. Its value comes from the hard work and dedication of 6.6 million people in our public sector, mostly low-paid women, working to deliver our vital local services. Pooling this money would enable the funds to invest in a wider range of UK assets and the government will consider legislating to mandate pooling if insufficient progress is made by March 2025.
To cut down on fragmentation and waste in the LGPS, which spends around £2 billion each year on fees and costs and is split across 87 funds – an increase in fees of 70% since 2017, the Review will also consider the benefits of further consolidation.
The £360bn in assets within the scheme are – in the Government’s view, subject to waste arising from the fragmentation of the scheme across 87 funds. The fragmentation prevents funds getting access to the best investment opportunities – constrained as they are by individual budgets. One superfund with one investment budget might improve investment and bring down fees.
The counterparty to the funding of LGPS is the council tax payer and the local authorities who have to contribute to LGPS’ maintenance. These costs pass through and prevent authorities from carrying out essential public works. Council tax payers are ultimately picking up the bills through higher taxes and reduced services. The comparison between the hard work of those contributing to the scheme and the scheme’s failure to work as hard for them could not be more explicit.
LGPS cannot hide for ever behind the success of its LDI swerve. There are fundamental issues within LGPS that need to be addressed. Dr Chris Sier’s Clear glass organisation, which analyses the prices paid by funds in the LGPS identified that some funds are being charged at fourteen times the rate of others. He has singled out Border to Coast as an example of good practice
There are clearly many contracts that could and should be renegotiated. But fund management fees are not the only costs that LGPS are unnecessarily incurring. Each fund has its own lawyers, actuaries, investment adviser, auditor and administrator. The cost of maintaining this infrastructure is a further burden on the tax-payer.
While I am pleased to see LGPS doing well, it surely can do better and do better by cutting down on its fund, advisory and infrastructure costs. Government is right to single LGPS out as it is primarily Government’s responsibility. It is good to see that LGPS will once again have its feet held to the fire , it can and must do better, despite the warm glow of its funding position
