PLSA warns UK government-proposed LGPS pool mergers must be ‘fair and fully costed’

The UK’s Pensions and Lifetime Savings Association (PLSA) has warned the government that local government pool mergers must be “fair” and “fully costed”.

Last week, ACCESS and Brunel were told by the UK government to merge with another pool instead of pursuing individual transition plans, as the government is seeking to drive consolidation across local government pension schemes (LGPS) in a bid to increase investment in domestic ‘productive’ assets.

This follows a consultation, that closed in January, on the government’s proposals to reform the structure, investment and governance of the local government pension schemes in England and Wales, with individual pension funds’ assets to be transferred to pools and for these to have internal management capabilities, and regulated by the Financial Conduct Authority (FCA).

The eight pools delivered reports setting out how they intended to meet the government’s proposed requirements at the beginning of March, with six of the pools getting a go-ahead for their proposals.

PLSA acknowledged that there are often benefits to consolidation, which it said the pools are already a product of, having consolidated 86 local authority funds in England and Wales into eight pools.

However, it said that in considering specific mergers, the interest of local authority pension scheme members should be “paramount”. For that reason, the government said, a process for considering pool mergers should be “transparent, fair, evidence-led and fully costed”.

ACCESS warned last week that a forced merger could cost between 28bps and 36bps of the value of active listed assets in pools alone, equivalent to over £100m (€117m).

PLSA said that pools should not be penalised for adopting a business model that is different from the direction now being proposed by the government.

In the government’s ‘Fit for the Future’ consultation on LGPS that closed in January, PLSA said: “LGPS Funds set out their pools according to the models that worked best and were most effective for them. Although some of them did opt for an FCA authorisation model, this was not a requirement set into regulation or statutory guidance.”

PLSA added that the cost of changing the existing arrangements for investment needs to be acknowledged and weighed against any benefits. Again, the PLSA noted previously that FCA authorisation “will involve significant costs, resources and time”.

The association also stressed that given the consequences of any decision, specific, quantifiable evidence should be provided to demonstrate the value for money of a change in the pooling structure, whether that is developing an existing model or requiring a merger.

It said the government should continue dialogue to deliver solutions that are in the best interests of pool members.

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