With Local Government Pension Scheme (LGPS) assets expected to reach £950bn by 2035, according to the UK’s Government Actuary’s Department (GAD), Rachel Elwell, chief executive officer of Border to Coast Pensions Partnership, acknowledges there are “loads” of benefits of scale, however, she noted that the LGPS needs to find a way to realise the benefits of scale “without destroying the thing that makes LGPS what it is”.
Speaking at the Pensions and Lifetime Savings Association’s (PLSA) Local Authority Conference this week, she pointed out that the LGPS – one of the largest pension schemes in the UK with over 6 million members and administered locally by 86 local pension funds in England and Wales – needs to remember of its accountability to local taxpayers but at the same time acknowledge it is in the top 10 UK investors in terms of assets under management.
And with that, she said the LGPS needs to think “very carefully” about any consolidation, whether that’s “how you achieve benefits of scale through greater savings, how do you do your pricing model, greater resilience, more opportunities to do more innovation”.
Elwell said that any of these benefits can be achieved by consolidation, however she added that mergers “don’t always work”, whether it’s because of the culture or management getting distracted away from the core activities.
“Pensions is a long-term game; we need to make sure that we really thinking about stable pension policy and how we do that in the best way.,” she added.
Jon Richards, assistant general secretary at Unison, added that “local conflict” can be “unhelpful” in decision-making as schemes are consolidating, noting that schemes and policymakers need “to strike a balance” on where schemes should invest.
He added that there is a “lot of contradiction” at the heart of the government’s policies on consolidation and devolution and future assets.
At the moment, the choice is “are we going to build new Apple computers or are we going to invest locally”, as Richards stressed that schemes and government need to come up with some ways of ensuring that devolution is possible in some way but accept that there is going to be consolidation.
“My advice to you is: it’s coming, ride the wave and see you can take advantage of that and how consolidation can work for you,” he stated.
Consolidation survey
A recent PLSA survey found there were mixed views on consolidation among LGPS funds with two in five (43%) who support it and a third (32%) who oppose it.
The main benefits of consolidation are seen to be overall lower costs (60%), better administration (47%), governance improvements (44%), better delivery of member services (44%) and improved investments (42%).
In contrast, the main disadvantages of consolidation include a lack of pension fund control (54%), and lack of accountability (54%). A third also feel there are timing implications (37%), while a similar proportion (35%) believe it could impact pooling arrangements in the future.
A third believe there should be the same number of funds as now (36%). However, half believe there should be fewer; a quarter (24%) saying there should be about half the number, and a similar number (24%) saying there should be about a quarter of the number of funds as there currently are.
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