LGPS fund management reforms
The Government has announced the creation of pension ‘megafunds’. Mark Radford looks at the key points.
In a press release dated 13 November 2024, the Government announced that LGPS Pension megafunds will be created as part of what it describes as the biggest set of pension reforms in decades.
The reforms, which will be introduced through a new Pension Schemes Bill next year, will create megafunds through consolidating defined contribution schemes and pooling assets from the 86 separate Local Government Pension Scheme authorities. It is believed by 2030 The Local Government Pension Scheme in England and Wales will manage assets worth around £500 billion
This idea seeks to replicate arrangements in Australia and Canada, where pension funds take advantage of size to invest in assets that have higher growth potential.
Investment potential
The Government believes that such mergers, could deliver around £80 billion of investment in exciting new businesses and critical infrastructure while boosting defined contribution savers’ pension pots.
The Government is therefore proposing to consult on proposals to take advantage of pension fund size and improve their governance.
Other than the proposal to consolidate funds, the Government proposes to introduce rigorous standards to ensure they deliver for savers, such as needing to be authorised by the Financial Conduct Authority.
LGPS governance overhaul
It is also proposed that Governance of the Local Government Pension Scheme will also be overhauled to deliver better value from investment decisions.
It is then proposed that each local Administering Authority (which currently consist mostly of County Councils and Unitary Authorities) will be required to specify a target for the pool’s investment in their local economy, working in partnership with Local and Mayoral Combined Authorities to identify the best opportunities to support local growth. The Government believes that this would secure £20 billion of investment in local communities.
The Government also proposed a new independent review process to ensure each of the 86 Administering Authorities is fit for purpose.
It will be interesting to see how these proposals develop, to what extent day to day administration of the Fund by local Administering Authorities will be centralised; and how the Government will ensure that the investments which Administering Authorities will be obliged to make, will be investments generating a financial return for the Fund, rather than what could be described as a raid on the Fund’s assets.
Mark Radford is a Senior Solicitor at Invicta Law.
