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LGPS funds warn Ministry of need for change in law amid concerns over draft asset pooling guidance

A partnership of Local Government Pension Scheme (LGPS) funds have given the Ministry of Housing, Communities and Local Government a copy of legal advice suggesting that proposals in draft statutory guidance on asset pooling require a change in the law.

Northern LGPS – a partnership between the Greater Manchester (GMPF), Merseyside (MPF) and West Yorkshire (WYPF) LGPS funds – is one of Britain’s largest public investment funds, with combined assets under management of £46bn. It represents a fifth of total LGPS assets and has approximately 880,000 members.

In an initial response submitted to the Ministry last month on its information consultation on asset pooling in the LGPS, Northern LGPS said: “We are extremely disappointed that the recent draft guidance appears to have completely lost sight of the desired outcomes and instead seeks to mandate a one-size-fits-all approach, which given the Northern LGPS’s existing scale and achievements to date is clearly sub-optimal for the Northern LGPS funds and their members, employers and taxpayers.”

Specific aspects of concern included:

  • The removal of the Value For Money criterion from the latest draft guidance – “surely this is the whole point of LGPS investment reform”;
  • The assertion that individual funds should be prepared to suffer an increase in their costs in order to benefit other funds in the pool or the wider LGPS. “This is clearly at odds with authorities’ fiduciary duty in managing their fund”;
  • The assertion that elected members owe duties to parties other than their own funds and relevant stakeholders (employers and members) is also contrary to their fiduciary duties;
  • The requirement for all pools to have a FCA regulated company. “We view this as unnecessarily prescriptive and believe the guidance should instead make clear that FCA regulated activities should not be carried out without either authorisation or an appropriate exemption from authorisation”; and
  • More generally, there is no evidence given in the consultation as to why the prescriptive requirements of the new guidance are beneficial to stakeholders.

“Based on our research in this area, we estimate that establishing an FCA regulated company would increase Northern LGPS’ costs by approximately £10m-£15m p.a., which in accordance with the New Burdens doctrine, we would expect Government to meet as there is no foreseeable basis we would be able to recover in the short or medium term,” Northern LPGS said.

“We also have serious concerns regarding the appropriateness of the process which Government has followed.”

Ahead of a meeting tomorrow (3 April) with Minister for Local Government Rishi Sunak, Northern LGPS shared advice it had obtained from Jason Coppel QC and James Cornwell of 11KBW on this process.

The partnership said: “It is clear to us that what is being attempted via statutory guidance actually requires a change to the law, with the Parliamentary scrutiny, which that would entail.”

Northern LGPS had said in its initial response that it did not believe the consultation met the consultation principles published by the Cabinet Office and there were many inconsistencies between the LGPS Investment Regulations and the draft guidance.

In the letter Northern LGPS reiterated its support for the objectives of the 2015 guidance, and said it hoped that its concerns could be addressed, suggesting “that implementing the new guidance as currently drafted would be a backward step for the Northern LGPS Funds, and clearly not in the best interests of stakeholders”.