The UK pensions industry has voiced concerns over Reform UK plans that would end the defined benefit (DB) pension scheme for new local government workers and merge 100 pension funds into a £500bn (€574bn) British sovereign wealth fund (SWF).
At a press conference yesterday, Richard Tice, head of Reform’s proposed Department of Business, Trade and Energy, said the fund would boost economic growth by investing in British businesses. He claimed it could reach the “top eight” global funds and generate annual surpluses of £20-30bn.
Tice criticised the Local Government Pension Scheme (LGPS), which covers 98 funds and has assets of around £500bn, as “well-intentioned but woefully managed in a disparate, uncoordinated way with no vision and no purpose of backing Britain”.
He added that the scheme’s fees are “over-inflated […] four or five times”, while “underperforming hugely and never meeting benchmarks”.
He also derided sustainable equity investments as a “whole load of woke nonsense”, citing one fund missing its benchmark “not by half a per cent or 1%, but by 5% in one year”. He proposed investing instead in UK companies such as British Steel.
Under Reform UK’s proposals, Tice said existing LGPS members’ benefits would remain “rock-solid identical” or “even more protected”, but new council employees would join a defined contribution scheme, cutting employer contributions to about 10% and saving councils “millions and millions of pounds every single year”.
Zoe Alexander, executive director of policy and advocacy at Pensions UK, rejected Tice’s characterisation.
She said LGPS is “one of the largest and most successful pension schemes in the world”, fully funded and consolidating assets into six pools ranging from £25bn to £100bn, with savings so far estimated at £1bn.
She described LGPS as an “exemplar” UK investment, returning around 7% per year over the past decade, and called Reform’s plans “concerning”, arguing the scheme exists to fund retirements for seven million local government workers, not government projects.
James Alexander, chief executive officer of UK Sustainable Investment and Finance Association (UKSIF), warned that forcing pension schemes to invest domestically could “distort markets and create asset bubbles”, lowering returns at a time when retirement shortfalls are rising.
He advocated unlocking pension capital through high-growth opportunities such as clean energy.
Steve Webb, partner at LCP, said directing LGPS funds to UK equities could reduce returns and increase volatility, creating additional costs for employers and council taxpayers.
He also warned that closing LGPS to new employees would offer “very little” savings in the near term and could complicate recruitment, forcing councils to raise salaries to offset weaker pensions.
“The vast majority of members of the LGPS are pensioners, deferred members or current employees, all of whom will continue to have full rights under the scheme under these proposals. But cutting the pension offer for new staff will make recruitment harder for roles which can already be hard to fill. Councils may find that they have to increase salaries to compensate for the worse pension offer, further reducing any potential savings from the reform,” Webb said.
