Talking head: The LPFA's chief executive Susan Martin argues the government's consultation on how local authority pension funds can benefit from working collectively does not go far enough.
The consultation includes detailed analysis of the potential benefits of collective investment vehicles as a way of addressing the £80bn deficit across the LGPS.
We will be working hard to explain the benefits super pools would bring, over and above CIVs
While it is good to see the response to last year’s call for evidence, we believe only focusing on CIVs misses a trick.
With potential efficiencies and access to different categories of investment such as housing and infrastructure, CIVs go some way to addressing the issue, but they only tackle the deficit from one end.
We have reduced our deficit by £387m between the 2010 and 2013 triennial valuations with a focus on asset and liability management. We believe this twin-track approach across the LGPS could deliver a bigger prize.
CIVs are likely to deliver some investment-related cost savings and improved economies of scale - however, these are benefits some pension funds can already harness through multilateral arrangements.
For this reason we’re glad that despite its focus on asset management, the DCLG consultation is asking for “any feasible proposals for the reduction of fund deficits”.
Between now and July 11 when the consultation closes, we will be working hard to explain the benefits superpools would bring, over and above CIVs.
Superpools, which would bring together the current 89 funds across the scheme into a smaller number of larger pools of capital, would help on a number of fronts.
This would not mean a wholesale merger of funds – local control and accountability would be built in – but it would maximise the scale and therefore the opportunity to manage both assets and liabilities smartly, to address the deficit.
A recent data-cleansing exercise of our deferred members wiped £8m of liabilities off our deficit; there are opportunities like this to manage liabilities across the LGPS.
Superpools would also create nationally important funds that could be centres of excellence for infrastructure and housing investment. We’re already talking to like-minded funds about how we could work together in future.
While CIVs are a tentative step towards active management of the deficit, bolder strides are needed. The government has seized the initiative recently with its changes to the defined contribution market.
Similarly, far-reaching change is needed to tackle the black hole in defined benefit schemes, and superpools could tackle the deficit from both ends.
Susan Martin is chief executive of the London Pensions Fund Authority
