Call for ‘wider conversation’ on LGPS overhaul

1 Nov 13
The government’s approach to reform of the Local Government Pension Scheme is unnecessarily narrow, the chair of England’s largest council pension fund has told Public Finance

By Richard Johnstone | 1 November 2013

The government’s approach to reform of the Local Government Pension Scheme is unnecessarily narrow, the chair of England’s largest council pension fund has told Public Finance.

Ministers want to overhaul the LGPS to improve investment performance, increase fund co-operation and identify administrative and management savings.

Kieran Quinn, chair of the Greater Manchester Pension Fund, said there was widespread agreement among LGPS funds that reform was needed. But he criticised local government minister Brandon Lewis’s decision to consider just three preferred options for change, warning that they may not be effective.

On October 18, Lewis announced that the coalition was pushing ahead with scheme reform. He commissioned a report to examine three options: a single national investment fund vehicle; a small number of closely aligned combined investment vehicles; or an outright merger of the 89 existing funds. This announcement came after a call for evidence looking for possible ways forward closed on September 27.

Speaking to PF, Quinn – who also chairs the Local Authority Pension Fund Forum – hit out at the decision to announce the preferred reform options without first analysing the consultation responses. More than 120 submissions were made to the call for evidence,  which was undertaken by the Department for Communities and Local Government together with the Local Government Association and the shadow LGPS advisory board. The board was established in May to encourage best practice between schemes.

‘Brandon Lewis might be right in saying that these are the three options, but there also might be better ones,’ Quinn told PF. ‘He’s right to say you can’t rest on your laurels, because there are some challenges in the LGPS, such as how do we embed what’s good in the LGPS more widely. But that [information] is contained in the evidence that’s been called for, and I would like a chance to read that.’

Ministers have made it clear they want pension funds – including those in local government – to play a role in economic regeneration, Quinn said. The Greater Manchester fund was ‘more than happy to play its part’, he added, highlighting the recent agreement to invest £800m in a commercial development at Manchester Airport as an example of this. 

Local government pension funds were becoming ‘much more open’ to conversations about investment in larger infrastructure projects, he went on. 

However, there were a number of evolutionary changes to existing investment rules that could encourage such deals without the need for broad structural reforms. These included a more ‘sensible interpretation’ of some of current LGPS regulations. 

‘My frustration is that [Lewis’ announcement] is like saying, “Which of these three teams do you support – Chelsea, Arsenal or Liverpool?” Well, actually, I don’t support any of them. I think you have to include Manchester United and Manchester City as part of it. We need a wider conversation.’ 

Upheaval caused by structural changes to the LGPS could also cost more than it saved in efficiencies, he added. GMPF research has indicated that, if funds change asset manager, they can underperform by as much as 65–75 basis points over three to five years. 

‘If you were to go from 89 to five [funds], say, what you’re basically 

saying to the LGPS over the next three to five years is that you’re going to underperform to the tune of about 75 basis points. And when you’re talking about £150bn [the value of the LGPS], that’s a significant amount. 

‘So all the benefits of mergers that the government is talking about would be wiped out in that one move. That’s why consultation is important.’

Nigel Keogh, CIPFA’s technical manager for pensions, told PF the government’s decision to examine three options in an external report also cast doubt on the role of the shadow board as part of the process of LGPS reform. He backed Quinn’s view that more needed to be done to improve collaboration between funds in the current structure.

‘There is an awful lot already in train in terms of collaborative working, and that has been going on for some time. 

‘Certainly, there is a lot more funds can explore that won’t require structural change. It can be done quicker, and with less risk and cost. All of these things need to be factored in to the equation when restructuring the LGPS – it’s not something that can be achieved overnight or without cost.’


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