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IPE special report May 2018

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UK government 'not wedded' to current number of LGPS

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  • UK government 'not wedded' to current number of LGPS

UK – The UK government is not "wedded" to the current number of local authority pension funds, the Department for Communities and Local Government (DCLG) has said as it launched one of two consultations on the future shape and regulation of the system.

The consultation on efficiencies, first promised by minister Brandon Lewis when speaking at a National Association of Pension Funds (NAPF) event last month, has asked respondents to discuss how the local government pension schemes (LGPS) could best achieve the "high-level" objectives of reducing deficits and increasing investment returns.

In a statement, DCLG said it had been made clear it was not "wedded" to the continued existence of the nearly 90 LGPS in England and Wales and that it would like to see greater co-operation among funds.

Hinting further at the possibility of mergers within the system, the department added that the government was "open to the possibility of structural changes such as mergers".

The wording largely echoes Lewis's speech at the NAPF, but will reinforce fears the government will seek to bring about mergers where it could be beneficial – even where local authorities are opposed.

Discussions about consolidation among the other 30 funds in London have resulted in Wandsworth council investigating a counter-proposal that would see the launch of a collective investment vehicle.

The chair of the council's pension committee, Maurice Heaster, has previously warned that closer cooperation with the London Pensions Fund Authority (LPFA) – one of the options debated for the capital – could be "disastrous".

Margaret Snowdon, director at JLT Employee Benefits, warned of the significant cost involved in merging the funds – and said the real benefits of scale would stem from consolidation of administration.

"Savings of around 20% could probably be realised through shared administration functions across the LGPS, but there are two ways this could be done – big bang or softer steps," she said.

Separately, DCLG has launched a consultation on future governance arrangements within the LGPS post 2014, when a new career-average system will come into effect.

In a series of nearly 30 questions, the department is seeking to learn if it should regulate the make-up of any LGPS pension boards, ensuring representation of both employers and employees, and the powers granted to a new national board that will be asked to advise the government on future reform.

Aon Hewitt's head of public sector benefits consultancy Karen McWilliam welcomed the introduction of the national LGPS board.

"The Scheme Advisory Board's potential further advisory role to local LGPS funds could be invaluable in articulating what good practice looks like and for developing national solutions," she said.

The governance consultation concludes by 30 August, while responses on greater efficiencies should be submitted before the end of September.

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