The UK government’s latest plan to pool the £193bn (€264bn) of assets in local government pensions in England and Wales into six wealth funds shows just how big a task the pension schemes have ahead of them in pooling their assets, Mercer has said.
Steve Turner, partner at the consultancy, said: “The chancellor’s statement provides the clearest sign yet of the scale of ambition the LGPS (local government pension scheme) has been tasked to come up with on pooling.”
If done in the right way, this could have significant investment and governance benefits to the LGPS and also to wider society, he said.
Speaking at last week’s Conservative party conference in Manchester, UK chancellor of the Exchequer George Osborne said the government would work with councils in England and Wales to create six “British wealth funds”.
He said this would allow the 89 LGPSs to increase their exposure to domestic infrastructure.
At Mercer, Turner cautioned that the overall aim of the schemes should not be forgotten.
“We shouldn’t lose sight of the LGPS’s ultimate objective of providing pensions in a cost-effective manner,” he said.
Meeting this aim requires, he said, “a holistic approach encompassing credible and transparent funding plans, effective cost management, best-in-class governance, return generation and risk management.”
“There is no silver bullet,” he said, adding that continuous effort on all these fronts was needed.
Turner said Mercer was working proactively with clients on pooling options that local government pension schemes had.
Individual local government authorities first need to work out the best way to organise themselves into effective working collaborative relationships that are big enough, he said.
After that, groupings can then look at the potential long-term cost savings of pooling.
Turner said they would also need to think about the cost implications of setting up a pooling structure and how that would be governed and monitored.
“A number of viable frameworks are being considered, including either setting up a structure from scratch or leveraging an existing framework to support pooling,” he said.
Last month, the Department for Communities and Local Government told the LGPS Advisory Board that all of the schemes’ assets would be pooled, with no funds being exempt, and that it hoped firm proposals would be in place by March next year.