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Challenges & opportunities ahead for the LGPS

Joanne Segars, chief executive of the Pensions and Lifetime Savings Association (PLSA), discusses the biggest concerns for the Local Government Pension Scheme (LGPS).

As readers will be only too aware, local government is under pressure like never before. Issues such as decentralisation, devolution and deficits are having an impact not just on the way local government is run, but also the LGPS – the largest public sector pension scheme in the UK, with some five million members and £190bn assets under management. 

The LGPS was the focus of the PLSA’s local authority pensions conference last month, which enjoyed record numbers of local authority fund representatives. We know our local authority members have a strong desire to help the scheme make a positive difference to its members, but as any pension manager will tell you there are a great number of challenges to achieving this. So, ahead of conference, to help inform debate, we surveyed local authority pension fund members on their biggest concerns for the LGPS. 

Biggest concerns 

At the top of the list of worries are cuts to public expenditure and the strain they place on local authority funds’ ability to fulfil their ultimate role – to pay pensions. 

Another concern for local authorities is something they would like to cut: pension scheme deficits. It’s clear that a positive cash flow overall cannot be an excuse for delay, and we can’t force future generations of taxpayers to deal with the issue by putting it to one side for now. Of course these challenges aren’t unique to the LGPS; they affect all defined benefit (DB) pension schemes, and that’s why the PLSA launched its DB taskforce earlier this year to look at the issues facing all DB pension schemes in more detail. 

A third concern is the government’s proposal to pool LGPS funds into six to eight pools of £25bn to create cost savings, whilst maintaining overall investment performance. Discussions on pooling have come a long way since they were first announced in the Summer Budget 2015, but throughout the debate the potential power within the £200bn in the LGPS of England and Wales has remained clear. And by leveraging that power through the pools, yet keeping asset allocation at a local level, it feels we have struck the right balance between efficiency and local accountability. 

Start of the journey 

We are, however, just at the beginning of the journey, and from my experience of setting up a similar asset pool in the form of the Pensions Infrastructure Platform (PiP) − specifically developed to facilitate long-term investment into UK infrastructure by pension schemes − I know the journey will take time and expertise. April 2018 is the deadline for these new pools to be in place, which might sound like a long way off but it will be here before we know it. So unsurprisingly, our survey found that local authority funds feel timescales for pooling are one of the biggest barriers to getting the pools up and running. 

Another challenge, according to local authority funds, will be the governance of pools, not least because of their scale, but also because they will be very different in their nature to participating funds – effectively operating as asset managers. And it’s likely these pools will require Financial Conduct Authority (FCA) authorisation. But again, FCA authorisation takes time. The PiP achieved FCA authorisation in January this year after a long journey, which then paved the way for the launch of its Multi Strategy Infrastructure Fund that announced first close in March.

But the LGPS can get there. Yes, there are challenges ahead as the LGPS works to deliver the government’s aspiration for pools, but there’s also opportunity, and by working together I hope we can capture these opportunities for the scheme and for the people who matter – the scheme members.

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