The UK pensions industry has rejected claims made by Reform UK that the Local Government Pension Scheme (LGPS) overpays for underperforming investments.
Yesterday, Reform UK called on LGPS to reduce the “egregious” fees it pays fund managers.
Richard Tice, deputy leader of the populist party, claimed that local authorities in England and Wales were paying at least £1bn (€1.1bn) more than they should in fees to fund managers, with inadequate performance costing between £8bn and £10bn annually over the past five years.
Reform UK’s figures were based on an analysis of 13 administering authorities, which have more councillors than any other party, using a benchmark of three-quarters invested in passive global equities and the rest in global bond trackers.
The party said the 13 council pension funds, managing £66bn in assets, had underperformed by an average of 1.9% a year since 2019.
Tice added that the average fee was 0.5%, or an overpayment of roughly £265m, and called for fees to be capped at roughly 0.1%.
He added that local authorities acknowledge that they underperform but take no accountability.
He said: “What we are seeing is a gravy train culture in the LGPS of overcharging with no responsibility, of underperformance with no responsibility, and it is the taxpayer who’s being ripped off and suffering the consequences.”
‘World’s most successful’
However, the pensions industry hit back at Tice’s claims.
Pensions UK said it “does not recognise” the claims made by Tice, adding that the LGPS is one of the “most successful” in the world and is already on the reform journey projected to save millions and further enhance the effectiveness of the scheme.
The association also stated that any policy proposing changes to the structure or approach of the LGPS should be supported by evidence and detailed plans.
Zoe Alexander, director of policy at Pensions UK, said the LGPS is one of the “world’s most successful pension schemes”, explaining that it has consistently demonstrated financial resilience and operational stability throughout regular periods of rapid change, capitalising on economies of scale and a collaborative culture.
Alexander pointed out that the latest valuation figures show that the LGPS delivered an aggregate return of 8.9% in 2024 with an average funding level of 108%.
She said: “The next valuation is expected to show this position even further improved. Significant improvements in funding over this valuation cycle are already expected to result in reduced employer contributions. Any savings could be passed onto taxpayers via reductions in their council tax, but these decisions are for individual councils.”
Alexander added that the policy of consolidation, pursued by both the last and current governments, has led to considerable savings, estimated at over £1bn, which are expected to accelerate as the investment pooling reforms proceed rapidly.
She said the vast majority of LGPS investments are now carried out via investment pools authorised by the Financial Conduct Authority (FCA), and from spring next year all investments in England and Wales are expected to be managed by these “large, sophisticated vehicles”.
Statutory and fiduciary duties
The LGPS’s Scheme Advisory Board (SAB) also rejected the claims made by Reform UK.
It said that administering authorities have statutory and fiduciary duties around the investment of pension funds.
There are also existing statutory controls, the LGPS Investment Regulations 2016, that ensure that LGPS funds hold diversified portfolios, explain their approach to non-financial considerations and take professional advice in relation to their investment decisions.
It added that the authorities normally delegate responsibility for managing the investments of the fund to a pensions or investment committee, where councillors take collective decisions on matters such as setting investment strategy, including a strategic asset allocation, responsible investment policy and choice of professional advisers.
The SAB also highlighted that the new Pension Schemes Bill going through Parliament takes broad powers for the secretary of state to direct LGPS funds and pool companies as to the development and implementation of their investment strategies.
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