Scotland’s local government pension funds are to consider increased pooling of assets as part of a government-backed review.
In a move that has echoes of the reforms underway south of the border, in February, Scotland’s local government pension scheme (LGPS) advisory board will present options to increase efficiency at the 11 public funds.
A public consultation will follow, with the results presented to the Scottish government later in the year.
A spokesperson for the Convention of Scottish Local Authorities – one of the organisations feeding in to the initial discussions – confirmed the review and told IPE that, “in terms of options, the review is open, and nothing is ruled out”.
According to a report presented to the board of the Strathclyde Pension Fund earlier this month, the review is likely to consider options including increasing shared services, pooling of investment assets or full mergers.
Respecting the current LGPS structure, Strathclyde’s head of pensions Richard McIndoe said in the report: “There are weaknesses … in terms of cost effectiveness, resource and expertise, particularly among the smaller funds.”
He added that “there may be more scope” for sharing procurement of investment consultants or managers.
Ian Blackford, the Scottish National Party’s (SNP) pensions spokesman, said in a debate in parliament in London in October that Scotland’s leaders were “committed” to removing barriers to LGPS funds investing in infrastructure.
“The SNP-led Scottish government is committed to changing pension scheme regulations to ensure they are not a barrier to local government pension schemes investing in infrastructure, and they are working with the scheme advisory board to achieve that,” he said.
“We in Scotland realise there needs to be more of a balance between encouraging that approach and paying due regard to the responsibility of scheme managers to invest pension fund money in accordance with the scheme managers’ fiduciary duty. The Scottish government is committed to achieving that delicate balance.”
Elsewhere in the UK, work is underway to combine assets across 89 LGPS funds in England and Wales into eight larger pools.
However, a Scottish government report published in November 2015 said politicians were “less attracted to the UK’s formal pooling arrangements”, instead preferring “informal” collaborations.
The Falkirk and Lothian pension funds already collaborate on infrastructure investment and are considering expanding this partnership to other asset classes.
A previous review of Scotland’s public pensions, conducted by Deloitte and concluded in 2011, recommended more collaboration between pension funds.
However, it said the cost savings from the more radical options – such as merging the 11 funds into three larger vehicles – would not be significant.
At £16bn, Strathclyde Pension Fund is the largest of Scotland’s LGPS funds, representing almost half (46.5%) of the country’s total LGPS assets.
Four funds have less than £1bn in assets.
In total, during 2015-16, the 11 funds spent £170m in investment management fees, according to their annual reports.
This represented less than 0.5% of assets under management.