Hutton: Transparency, efficiency and investment must improve in LGPS

Speaking at the National Association of Pension Funds' Local Authority Conference this week, Lord Hutton said there was good news and bad news for the Local Government Pension Scheme following four years of substantial change.

"By and large we are in a very different place to 2010," he said, "the scheme is on much more solid foundations."

However, Hutton said the LGPS will be hit by a “shedload” of financial pressure as the new government cracks down on inefficiencies across the public sector. 

“We have an opportunity to re-articulate the case for the LGPS but we must accept it is inevitable that change is heading our way," he said.

Performance review

Hutton said the government was right to call for improved transparency, efficiency and investment performance, and the scheme must take measures to reduce the £600m cost of administering local authority funds.

“What is the tolerance for allowing this waste and inefficiency to go on?” he said. “If there is no good plan to save money then changes will be pushed through.”

We have an opportunity to re-articulate the case for the LGPS but we must accept it is inevitable that change is heading our way

Lord Hutton

However Nigel Martin, vice-chair at Durham County Council Pension Fund, challenged Hutton's assertion that significant savings could be made by improving administrative systems. 

“At times someone has to say the assertion you are making about savings is wrong,” Martin said at the event.

Phil Triggs, strategic manager of Surrey County Council Pension Fund and treasury, asked Hutton whether the newly formed local pension boards had been created to “assist or scrutinise”.

“I suspect they will look and behave differently across schemes; some will add real value,” said Hutton, adding: “If it does provide additional leadership that will be a good thing."

Active vs passive

Hutton was critical of proposals for a wholesale move of LGPS assets out of active management into low-cost passive vehicles and said the idea of preventing schemes from accessing the best active managers was “perverse”.

“Any switch to passive would need much more careful analysis,” he said. 

Hutton’s comments come as the latest instalment in a long-running debate over the future of active management in the LGPS.

In May last year the Department for Communities and Local Government put forward proposals to move £85bn of actively managed LGPS equity assets into passive management via a common investment vehicle.

The DCLG claimed the move would save the pension scheme £420m a year in investment fees and transaction charges.