Union seeks parliamentary debate on LGPS pooling

The road to driving economies of scale in the LGPS has been long and winding, but since the July 2015 Budget and publication of the government’s criteria for collaborative investment in November, momentum has gathered behind the pooling of assets across the scheme.

The scheme’s 89 funds serve more than 5m members across England and Wales, but the ramping up of plans for a radical overhaul of investments has raised concerns among union representatives.

There is a feeling that if a future government got in and was feeling radical, they might change that guidance to require the funds to invest in specific areas

John Hanratty, Nabarro

Petition launch

Earlier this month, Unison launched a parliamentary petition calling for MPs to debate government plans for the investment of LGPS assets in infrastructure.

Under the government’s criteria for asset pooling, each group of funds must demonstrate the “proportion of the fund they intend to invest in infrastructure, their ambition in this area going forward, as well as how they have arrived at that amount”.

In a further development, the government's consultation on LGPS investment regulations, which came to a close in February, proposed the introduction of a legislative backstop or safety measure, allowing the secretary of state to intervene in the investment function of administering authorities.

According to the draft regulations, the proposed intervention could: 

• require an administering authority to develop a new investment strategy statement;

• direct an administering authority to invest all or a portion of its assets in a particular way that more closely adheres to the criteria and guidance.

Through its petition, Unison aims to bring about a parliamentary debate on the proposed changes, seeking to “make the government accountable for these powers of intervention as any such direction may breach the law”.

Colin Meech, national officer at Unison, said the government’s proposals contravene Article 18 paragraph 3 of the EU directive on Institutions for Occupational Retirement Provisions, namely that “member states shall not require institutions located in their territory to invest in particular categories of assets”.

Meech said the legal basis of the investment pools is in question, and representatives of the scheme’s beneficiaries, had been “locked out” from the negotiating table.

“While we are completely supportive of a scaling-up process and a more efficient management of our members’ pension funds, we are very concerned that the legal basis for the process has some flaws,” said Meech.

“The government claims it has implemented obligations in the European IORP directive, [but] it clearly hasn’t.”

Meech said the cost efficiency of the structural overhaul was also a primary concern for Unison, in part due to the fact there is currently no statutory underpin for members’ benefits.

“At the moment, there is no evidence that true cost data will be provided. We are very concerned that there is no transparency and parliamentary accountability for such a serious change in the way that the LGPS is run.”

So far the petition has attracted more than 28,000 signatures, and having exceeded the threshold of 10,000 signatures has warranted a government response.

Powers of intervention

According to the Department for Communities and Local Government, reform of the scheme investment is expected to deliver annual savings of at least £200m to £300m.  

A DCLG spokesperson said: “This is unnecessary scaremongering by Unison. We are not saying that councils must invest in infrastructure. We are simply saying that where appropriate, infrastructure should be considered as an investment option given the potential economic gains.”

But John Hanratty, partner at law firm Nabarro, said Unison “have got a case” around how the government’s powers of intervention interact with the European IORP directive.

“The unions don’t like the step-in rights granted in the [draft] legislation… if the fund doesn’t comply with guidance issued by the secretary of state,” he said.

“That guidance can be changed without parliamentary input; there is a feeling that if a future government got in and was feeling radical they might change that guidance to require the funds to invest in specific areas.”

Hanratty said if the petition leads to a parliamentary debate, the outcome would depend on the number of rebel voters.

He also pointed out that under the tight schedule for pooling, which requires funds to submit their final proposals by July, the petition could “slow things down”.