LPP: Why private sector schemes should pool assets

The Local Government Pension Scheme journey is often cited. Lancashire County Council and the London Pensions Fund Authority identified that the most effective way to manage deficits, improve returns and reduce costs was to come together in a not-for-profit partnership.

The Local Pensions Partnership was launched around an asset-and-liability management model providing a range of pension services to both founding funds and other pension funds.

Through scale, in-house management and focus on risk management comes a greater range of investment, and this, together with developing depth and breadth with an in-house team, leads to greater stability.

An intense learning journey

The time between formally deciding to enter into a partnership and launching LPP with full Financial Conduct Authority accreditation was brief and busy – some 18 months.

From the beginning, we agreed we would secure external support in terms of legal, FCA compliance and some financial advice, but that we would manage everything else to do with the establishment of the partnership ourselves.

This has led to a good working knowledge of all aspects of running pension services – from governance, compliance, securing an authorised contractual scheme, through to savings, which can be achieved on administration.

What are the benefits?

Six months in, what are the benefits for shareholders and clients? Without a doubt, all benefit from greater assurance, resilience and risk management.

There is an experienced team delivering for every client. Key-person risk in terms of skilled resource has lessened considerably.

Costs have reduced for asset classes, which are managed externally. There are greater opportunities for investment in different asset classes or in existing asset classes, which can produce greater returns at lower costs.

There is more opportunity to research, test or to build new relationships and explore other partnerships and co-investments.

Liability management has taken a greater focus throughout the organisation.

And in pension administration there are opportunities for improved service and greater efficiencies.

Sharing knowledge

In addition, there are benefits to the sector more generally, as we have been able to share learning and experience with our LGPS colleagues through the cross-pooling group.

We are all learning that grouping together is not a simple process, but the additional complexity hides the very significant benefits that undertaking this journey provides.

Given our experience I would encourage pension schemes to consider greater collaboration and, where appropriate, come together with like-minded funds.

Susan Martin is chief executive of the Local Pensions Partnership