LGPS funds to be exempt from fiduciary management rules
UK local authority funds will be exempt from new rules governing the appointment and monitoring of fiduciary managers and investment consultants, according to a consultation published yesterday.
The Department for Work and Pensions (DWP) has launched a consultation on the implementation of rules proposed by the Competition and Markets Authority (CMA) on the back of its market investigation into the fiduciary management and investment consulting sectors.
Consultancy Hymans Robertson last month called for clarity on the application of the new rules to the UK’s £346bn (€378bn) Local Government Pension Scheme (LGPS) system. The CMA’s ruling became law on 10 June, but the wording was ambiguous as to its application to LGPS funds. They had been exempt throughout the CMA’s 15-month investigation.
In the consultation published yesterday, the DWP stated that the new regulations did not apply to the LGPS. It specified that the requirement to set strategic objectives for investment consultants would not apply “as regulations and guidance in relation to the LGPS are a matter for [the] Ministry of Housing, Communities and Local Government”.
The clarification also means that LGPS funds will not have to review or retender their relationships with the asset pools they have created since 2015.
In a briefing note on the CMA’s order earlier this month, the LGPS Advisory Board had said the ruling potentially had significant consequences for LGPS pools “if their pool companies were caught by the definition of fiduciary management service providers and cannot use the exclusion for pension scheme owned companies”.
Other exemptions, too
The DWP has also exempted other types of pension fund from the regulation, including any scheme sponsored by the provider of fiduciary management or investment consulting services, and master trusts for which a fiduciary manager or investment consultant is the appointed scheme strategist or scheme funder.
“We agree that it would be impractical in these circumstances to expect the scheme trustees to carry out a competitive tender for fiduciary management when they would have a clear and legitimate preference to use the services of the sponsoring employer,” the DWP said.
“However, we believe it is reasonable for the trustee to set their investment consultant objectives and monitor performance against them, regardless of whether the investment consultant is connected with the sponsoring employer of the scheme. The member can suffer detriment if this is not done.”
Under the new rules, schemes outsourcing 20% or more of assets to a fiduciary manager are required to conduct a competitive tender for the mandate, including at least three providers. Schemes that have already employed a fiduciary manager without a tender must do so within the next five years.
In addition, the regulations oblige fiduciary providers and consultants to improve the transparency of performance and cost reporting, while pension scheme trustees are required to set strategic objectives for their investment consultants.
The consultation is open to responses and feedback until 2 September.