LGPS pooling: Consultation will run for 11 weeks

In March's spring budget the government challenged LGPS funds in England and Wales to move further and faster on consolidating assets and said it would launch a consultation that would propose that LGPS funds transfer all listed assets into their pools by March 2025. 

The consultation LGPS: Next steps on investment has been launched, and will run for 11 weeks, closing on 2 October.

The Chancellor Jeremy Hunt announced the consultation in his first annual Mansion House speech.

He said: "Government must lead by example, so we will consult on accelerating the consolidation of Local Government Pension Scheme assets, with a deadline of March 2025 for all LGPS funds to transfer their assets into local government pension pools and ensure greater transparency on investments.

"To make sure we are delivering the maximum benefits of scale, we will invite views on barriers to achieving better investment returns across the LGPS as well as setting a direction that each asset pool should exceed £50bn of assets."

Hunt said the government would also consult on an ambition to double the existing local government pension scheme allocations in private equity to 10 per cent, which he claimed could  unlock a further £25bn by 2030.

Scope of the consultation

The consultation will seek proposals around five main areas:

First, to find out from administering authorities how they are investing their funds with a deadline for asset transition proposed as March 2025.

Second, to require funds to have a plan to invest up to five per cent of assets to support levelling up in the UK, as announced in the Levelling Up White Paper (LUWP). 

Third, an ambition to increase investment into high growth companies via unlisted equity, including venture capital and growth equity. 

Fourth, views about proposed amendments to the LGPS’s regulations to implement requirements on pension funds that use investment consultants; these amendments are needed to implement the requirements of an order made by the Competition and Markets Authority (CMA) in respect of the LGPS.

Fifth, the government is proposing to make a technical change to the definition of investments within LGPS regulations.

LGPS investments

Nigel Peaple, director of policy and advocacy at the PLSA, said pooling in the LGPS had allowed funds to achieve economies of scale on some of their investments, while cutting costs.

"However, as it is only five years since the first pooling reform, we believe it would be prudent to allow the existing structures more time to imbed, to maximise value from the changes. Many of the pools already have assets of £30bn to £40bn so, as contributions are made, many will reach the government’s target size of £50bn in the near future."

He urged the government to provide more resources and guidance to help make the most of the existing pooling structures rather than "reducing the number of pools at this time".

Jeff Houston, a senior pensions consultant at Barnett Waddingham, said the consultation was welcome. "We've been waiting for it [and] it looks like it will bring some clarification. 

"The best thing for LGPS funds to do right now is to continue to pool in the way they feel is most appropriate. Pooling gives cost benefits and access to alternative assets that just aren’t achievable without scale.

"The chancellor also said the ambition is for LGPS to invest 10 per cent of funds in private markets, and LGPS as a whole already invests five per cent in this asset class. Adding another five per cent will equate to an additional £17bn of assets under management.

"The question is, are there enough opportunities at the necessary scale for us to be able to achieve that level of investment.

"It must be considered in the context of funds’ duty to invest in the best interests of savers, to have a balanced portfolio that also takes into consideration the government’s objectives on responsible investment, and the available pipeline of investible opportunities for schemes."