By Richard Johnstone | 22 May 2013
Local government minister Brandon Lewis has set out plans to undertake a ‘root-and-branch review’ of the Local Government Pension Scheme’s investment regulations. The possibility of merging schemes is also to be examined.
The review will examine the rules, which set caps on the amount funds can invest in certain assets. In March, Lewis confirmed that the limit covering infrastructure projects would be doubled to 30% of total assets.
Speaking to the National Association of Pension Funds local authority conference yesterday, he said that the government now accepted further reforms might be needed to get better returns from the £150bn invested in the 89 local government schemes.
‘I therefore want to undertake a root-and-branch review of the LGPS investment regulations. In particular, I want to know if there are any other obstacles in the regulations that prevent you from maximising your returns.’
However, Lewis said that he was not suggesting that investment regulations be removed altogether, as taxpayers’ money was being invested through the scheme. ‘We must continue to get the right balance between risk and reward,’ he added.
The move comes as a new local government pension regulatory plan is being developed to take account of the reforms that the government has made to public sector schemes. This will come into effect in April 2014.
Lewis also confirmed the Department for Communities and Local Government would issue a call for evidence into whether there should be mergers among the existing local government pension schemes.
This would lead to a consultation later this year on a number of broad principles for change, he added, which will look at reforms that could both improve investment performance and reduce fund management costs.
Ministers would not set a ‘pre-determined solution to what is undoubtedly a complex and contentious issue’, Lewis added. ‘However, the clear message from me this morning is that I am not wedded to the existing number of 89 funds in England and Wales. If it takes a smaller number of funds to improve the efficiency and cost-effectiveness of the scheme, I shall not shy away from pursuing that goal.’
Responding to the announcement, CIPFA pensions panel chair Bob Summers said funds must explore ‘every opportunity in the search for achieving the best value for money in delivering the LGPS’.
He added: ‘Fund mergers are just one end of a spectrum of measures which includes removing regulatory barriers to better fund management, developing shared services, collaborative procurement, framework agreements and the emerging collective investment initiatives, all of which can drive improvements through reduced administrative costs and increased investment returns.’
There must be a ‘sensible balance struck between the need to deliver the pensions service and the competing demands upon ever dwindling local authority resources’, he added.
‘CIPFA looks forward to working with DCLG to define the objectives required and contributing to the forthcoming call for evidence.’
NAPF chief executive Joanne Segars said council funds had ‘never been under more pressure’ as the reformed pension scheme rules were being prepared.
She added: ‘Local authority funds will have to place an even greater focus on finding efficiencies and maximising value for money. This is already happening and we have seen some good examples of collaboration, but we should ask if more can be done.
‘The minister is right to open a wider debate on what funds can be doing, and to do so with an open mind and a clear call for evidence.’