LPFA: Government gives vote of confidence to proactive LGPS funds

Opinions ranged from full-scale reform to slight adjustments to somewhere in the middle.

While the chancellor’s announcement put forward a green paper to explore ‘radical’ change, the reference to the Local Government Pension Scheme was more muted – although no less industry-altering if actioned.

The government’s decision to reward ambitious funds that deliver savings and strong investment performance, but taking more direct action with those whose performance in terms of costs and returns is lacking, is a strong step forward in addressing LGPS deficits and a marker in the sand.

Vote of confidence

For some time many have worried about one solution imposed across the entire LGPS and the ramifications it may have.

However, the government’s tip of the hat to funds that are addressing the issue is a vote of confidence to our own partnership with Lancashire County Pension Fund and to others working together to reduce their deficits, such as the London Councils’ Collective Investment Vehicle.

The benefits of pooling have long been explored and commented on. Through strong collaborations with like-minded funds, we can build economies of scale, access different types of asset classes and undertake a greater number of direct investments, achieve cost reductions in administration and more effective liability management.

It was with this in mind that over a year ago we started talking with Lancashire County Pension Fund. From these initial discussions I am delighted that at the start of July we received approval from the LPFA Board and Lancashire's Pension Fund Committee to press on with our collaboration.

Our partnership will cover all aspects of pension fund management and be a fully fledged pension service organisation, providing both jointly managed administration and pooled asset and liability management activities through newly created corporate structures.

It enables funds to retain local accountability and sovereignty. Once operational it will service 500,000 members and work with 1,000 employers – approximately 10 per cent of the LGPS.

Over time we aim to grow our partnership from £10bn to £40bn, both organically and through other LGPS funds joining when it is successfully off the ground.

It is early days and what we are working towards cannot be done overnight. Much like the government, we feel that the ambition of funds should be recognised and harnessed in order to secure long-term success.

Surely this is a better way for the LGPS to operate.

Susan Martin is chief executive at the London Pension Funds Authority