Falkirk Council Pension Fund and Lothian Pension Fund, part of the Scottish local government pension scheme (LGPS), intend to merge their operations, which would create a £11.3bn (€13.2bn) pension fund.
Both funds had carried out an investigation of the expected benefits, disadvantages, costs and risks of a merger “and this review is now complete with a favourable outcome,” they said in a joint statement today.
Work on due diligence and implementing the merger proposal will proceed over the course of this year.
Subject to final approval by the administering authorities’ councils, regulatory clearances and legislative process, the hope is that the merger could be completed in 2023. If the merger proceeds the operations and administration teams will be merged, and the fund will adopt a single way of working.
David Vallery, chief executive officer of Lothian Pension Fund, said he was confident that a merger was in the best interest of members and employers.
“Both funds share the same principles and objectives: to provide excellent administration to members and to invest assets responsibly,” he added.
Benefits cited by the pension funds include building an “increasingly resilient pension fund provider for the City of Edinburgh and Falkirk Council with operational scale to leverage contracts and investment in new technology” and having a company board with increased professional expertise.
Amanda Templeman, chief finance officer of Falkirk Council Pension Fund, said the two pension funds were exploring an “innovative approach to local authority pension fund management which has the potential to improve the operation and resilience of the funds”.
“The funds have worked effectively together for over 10 years and the potential merger looks to build on that successful partnership. As ever, our focus is on doing the right thing to safeguard the interests of our scheme members.”
Lothian and Falkirk Council pension funds have been using a collaborative investment model and joint investment strategy panel since June 2017, after Lothian spun out its in-house investment team into the LPFI, an entity regulated by the Financial Conduct Authority. Lothian had been providing investment support to Falkirk for five years before that.
In 2018 the pension fund for the council of Fife joined the arrangement between Lothian and Falkirk.
Falkirk and Lothian said there were no mergers with other funds under discussion.
In June 2018 the advisory board for the Scottish LGPS launched a consultation about the future structure of the nation’s scheme, which comprises 11 pension funds, presenting four options: retaining the existing structure; promoting cooperation; pooling investments between funds or merging the funds into one or more new funds.
In an analysis of consultation responses, the Pensions Institute said the case for a merger of Scottish LGPS funds should be evaluated, not least because “two funds had expressed a desire to merge”.
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