Long-term stability ‘crucial to LGPS reforms’

21 May 14
Proposed reforms to the Local Government Pension Scheme must ensure long-term stability as well cost savings, the National Association of Pension Funds has said.

By Richard Johnstone | 21 May 2014

Proposed reforms to the Local Government Pension Scheme must ensure long-term stability as well cost savings, the National Association of Pension Funds has said.

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In its response to the government’s consultation on changes to the LGPS to create common investment vehicles across the 89 funds in England, the NAPF said the plan must meet three key principles: value; flexibility; and a long-term approach.

Ministers have said that as much as £660m a year could be saved through greater use of common investment vehicles, but NAPF said the changes ‘should focus on delivering good value for employers, taxpayers and scheme members to ensure the long-term sustainability of the fund, not just low cost’.

In addition, the reforms must also allow individual funds sufficient flexibility to invest in accordance with their local circumstances where this can add value. This could include active management approaches for assets, which the government has said should be phased out and replaced with a passive arrangement through a common investment vehicle that could eventually save up to £420m.

The governance of the common investment vehicles – with one also planned for investments in alternative assets – must also be aligned with the long-term interests of LGPS funds to provide good long-term value.

Speaking at the NAPF local authority conference yesterday afternoon, chief executive Joanne Segars said these principles would help to ‘collectively assess the success of reform and to guide us to a good outcome’.

She added: ‘Balancing these principles isn’t easy, I acknowledge, but that’s the challenge.

‘The NAPF looks forward to working with local authority members to respond to the consultation and to shape the government’s proposals.’

Responding to the NAPF’s outline, CIPFA pensions panel chair Bob Summers said: ‘The NAPF’s observations are a valuable and welcome contribution to the LGPS reform, particularly the emphasis on governance.

‘CIPFA, through its advisory role to the shadow LGPS advisory board, will continue to work with the government and stakeholders alike to deliver a LGPS that remains sustainable and affordable for employers, taxpayers and members in the long term.’

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