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UK government schemes abandon merger after last-minute U-turn

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Three English county pension funds looking to collaborate over investments and administration have called off their plans due to the government consultation on changes to the Local Government Pension Scheme (LGPS).

The Royal Borough of Windsor and Maidenhead (RBWM), Buckinghamshire County Council (BCC) and Oxfordshire County Council (OCC) had been in discussions since 2013, in a bid to increase efficiencies and cut costs.

RBWM sponsors the £1.6bn (€2.1bn) Berkshire Pension Fund, with the other pension funds holding £1.8bn and £1.5bn in assets, respectively.

However, discussions between the three neighbouring funds were abandoned as the central government debates the future of LGPS investments

In May, the government, also trying to cut costs, published a consultation on the creation of two collective investment vehicles for the 89 LGPS funds in England and Wales, ending speculation over scheme mergers.

The Department for Communities and Local Government (DCLG) is considering responses over whether to mandate LGPS funds into investing all listed assets passively.

OCC and BCC said it was this consultation that compelled them to end negotiations with RBWM, as any potential shift in government policy would affect the cost/benefits previously identified.

RMBM said the Berkshire Pension Fund met on 3 December and approved collaboration with the two funds, expecting their Buckinghamshire and Oxfordshire counterparts to do likewise.

However, a spokesman for OCC said: “Following the presentation of a report on the potential savings, Oxfordshire’s pensions committee deferred any decisions on collaboration.

“The council is awaiting an expected announcement by central government on whether it will in future require LGPS funds to use passive investment for all listed shares, as this will significantly impact the financial business case for future collaboration.”

The pension fund’s committee did suggest it would explore options for collaborations with “more suitable” funds.

According to Nick Greenwood, manager of the Berkshire Pension Fund, the Buckinghamshire committee also said it was not prepared to make a formal move until the DCLG decision.

Greenwood said the BCC committee was uncomfortable with the differences between its own and the Berkshire Pension Fund’s investment strategies, and that the committee wanted to investigate the benefits of leaving RBWM out of the arrangement.

The note from Greenwood added that both BCC and OCC announced they were approaching the government, alongside Northamptonshire Country Council, seeking permission to create a three-county authority, which could potentially include pensions in the long term.

“No mention of these discussions was made at our 17 November meeting with the two councils,” Greenwood said.

“Consequently, it is clear both councils have no intention to collaborate with RBWM on managing pension funds.”

The DCLG consultation response was expected to be published in 2014.

However, it is now expected to be published in early 2015.

Aside from mandating all 89 funds to invest listed assets and alternatives through collective investment vehicles, the government will also consider a ‘comply-or-explain’ approach.

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