Investment management costs for the Local Government Pension Scheme (LGPS) have decreased by £141m (€167m) as of 31 March 2023 – a 7.6% change from £1.8bn, according to the scheme’s latest annual report.
The investment management cost decrease was attributed primarily to a £188.5m net decrease in performance fees.
The LGPS board also noted that management fees increased by £106m to £1.3bn, transaction costs also went up – by £15m to £1.8bn – while other investment costs decreased by £71m to £44.4m.
Total administration and governance costs, meanwhile, increased by £28m, with administration costs going up by £12.1m, and oversight and governance costs also increasing by £19.7m. “Other” administration and governance costs came down by £3.8m, according to the report.
Investment
The report also noted that the total value of the LGPS in England and Wales at the end of the 2022-23 financial year stood at £354bn, from £369bn in 2021-22, reflecting a challenging year for investments, largely resulting from the economic shocks associated with Russia’s invasion of Ukraine, as well as the UK’s “mini budget” in September 2022.
The report showed that the asset mix across the LGPS was broadly similar to previous years, with continuing evidence of growing allocations to alternatives and private equity and gradual decreased allocation to public equities.
The biggest percentage points change relative to the total value of assets between 2021-22 and 2022-23 was bonds, which decreased by 2.2% to £44.1bn from £53.2bn, followed by infrastructure, which increased by 1.5% from £17.8bn to £22.7bn.
Assets in private debt went up by 1.3%, the third largest percentage point change from 2022, reflecting the ongoing diversification of the scheme and investment in unlisted asset classes.
The report also noted that as seen in the previous year, excluding investment income, the scheme was cash-flow negative. Contribution income decreased by £0.5bn and was £0.9bn lower than benefit outgoings.
However, despite the challenging year for investment returns, including investment income and charges, the scheme had a positive cash-flow position overall of £2.07bn
Membership
The report also showed that total membership of the LGPS grew by 1.6% (106,166) to 6.49 million in 2023 from 6.39 million in 2022, and the data shows that there were 51,037 newly retired pensioners during the year.
The 1.6% growth in membership is split as follows – the number of contributing active members increased by 0.6%; the number of deferred pensioners increased by 0.2%, and the number of pensioners increased by 0.8%.
The report noted that the increase in number of active members is “positive” especially in a year when inflation was at “record levels”, which means members chose not to opt out as a result of the cost-of-living crisis.
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