The UK government will force the nearly 90 local authority funds in England and Wales to pool their assets, and plans to finalise its proposals by March next year.
The Department for Communities and Local Government (DCLG) has told the Local Government Pension Scheme (LGPS) Advisory Board that all of the £193bn (€264bn) in assets would be pooled.
It insisted that none of the funds would be offered an exemption, even if it had a proven track record for in-house management.
It follows an announcement in the Summer Budget that a consultation on costs would be conducted by the autumn.
In documents released by the advisory board ahead of a meeting on 21 September, it said details of how pension assets could be pooled would be released this autumn, while the government hoped firm proposals would be in place by March 2016.
“A ‘clear direction of travel’ would be useful within the next six months,” an annex attached to Monday’s draft agenda of the board meeting said.
“Proposals are expected to be realised within the lifetime of this Parliament. It is recognised that this is a challenge, but Secretary of State [Greg Clark] has a preference for collaboration over prescription.”
The document stressed that the proposals would move away from the notion of banning active investment by the LGPS – a suggestion heavily criticised by councils, and one that triggered threats of a lawsuit.
Those local authority funds with sizeable in-house managers – including the schemes for South Yorkshire and Greater Manchester – were put on notice that their in-house management teams would not enable them to sidestep any of the pooling proposals, as there would not be exemptions for any fund.
“However, outperforming internal investment teams are well placed to work together to lead and influence the pooling proposals,” the annex said, summarising responses from a meeting in late August.
Schemes in Scotland, including Lothian and Strathclyde, that have in-house management are to be exempt, as reform is a matter for the devolved Scottish Parliament.
Pension funds were also warned that they should not expect any compensation from the central government for the costs associated with the restructuring of portfolios.
But they were also assured that those funds less willing to opt for collective investment vehicles (CIVs) – the approach chosen by the London councils for pooling – would not be penalised, as long as there were “other, just as acceptable” means of pooling.
A separate meeting document outlined a number of speculative approaches to pooling, including regionally based collaboration and ones based around asset classes, all with the prerequisite that they meet as yet undefined scale criteria.
It said pooling could be achieved through joint tender exercises, which seven funds have recently launched for a passive equity mandate, combined vehicles such as the London CIV, or joint vehicles such as the one launched by the London Pensions Fund Authority in conjunction with the Greater Manchester Pension Fund.