Wealth funds offer opportunity for LGPS governance boost

7 Oct 15

Moves to create six British Wealth Funds from local government pension fund assets is an opportunity to improve governance across the sector, a senior figure told a CIPFA event at the Conservative Party conference.

Denise Le Gal, chair of the Surrey Pension Fund Board, told the fringe meeting on public sector pensions yesterday that the reform could also improve investment returns across the 89 LGPS authorities.

Chancellor George Osborne announced on Monday the LGPS asset merger as part of a four-point plan to boost infrastructure development. Each of the half dozen wealth funds will be worth more than £25bn.

Le Gal said that once the pooled funds are introduced, “our governance will have been streamlined, and that will help narrow the gap [that the LGPS is only 72% funded]”.

“As you can imagine among those 89 funds, governance is inconsistent, perhaps there only a few that are less well governed and have investment strategies that are less than optional.”

She insisted that the government would not be able to tell funds what to invest under the planned reforms.

“They cannot tell us how or where we invest that money. There is no doubt that in a sound investment strategy, you would have an asset allocation to infrastructure, and that would be a finite amount of something in the order of 7-10%.

“It has to stack up with our primary fiduciary duty is to maximise returns for our investors, with an appropriate level of risk. It’s as simple as that [and] government can’t do anything about that. I do think that pooling will give LGPS funds some scale with which they can invest.”

Also speaking at the event was Philip Booth, editorial and programme director of the free market Institute of Economic Affairs. He said public sector pensions were “leading to a crisis” due to the aging population.

He called for all powers over public sector pay and conditions to be devolved to individual employers to allow them to account for regional differences in the labour market and to begin to build up funded pension schemes.

Currently, only the local government pension scheme is funded among public sector schemes.

“If you crystallise all accrued benefits, we can then have a conversation between the employers and the employees about what the package should be,” Booth said.

“But you can’t have that conversation until you’ve explicitly and transparently costed the pension costs. We should understand how much public sector pensions cost so we can make rational decision about the salary package as a whole.”

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