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Cost savings not the overall solution for local government pensions – NAPF

The government should focus on individual fund performance within the Local Government Pension Scheme (LGPS) with plans to bring poorly-performing funds up to standard, rather than focusing purely on how to reduce costs, the National Association of Pension Funds (NAPF) has stated.

Within the DCLG’s recent consultation – Local Government Pension Scheme: Opportunities for collaboration, cost savings and efficiencies – it has been proposed that significant cost savings could be made by using passive investment strategies and collective investment vehicles (CIVs). 

Although the NAPF concedes that savings of around £660m could be made, through the greater use of passive investment and by using CIVs, it only represents a small proportion of the LGPS’s £47bn deficit.  NAPF adds that while it supports the development of CIVs it does “not believe that investment in one type of CIV should be mandated”.

Instead the NAPF, which is the leading voice of workplace pensions in the UK, recommends the government, through the Scheme Advisory Board, should focus on identifying good and bad performance at LGPS fund level and target regulatory interventions to bring poorly-performing funds up to standard.

Additionally, there should be no mandatory use of passive investment.  Instead a ‘comply or explain’ approach should be adopted and regularly reviewed by various external parties. And funds should have the flexibility to look at alternative ways of co-investing.

Joanne Segars, chief executive, NAPF, said: “The NAPF supports the government in its wish to secure a LGPS that delivers good outcomes for its employers, local taxpayers and scheme members. 

“But the Government is mistaken in thinking the LGPS can be treated as a homogenous whole when it is comprised of 89 different funds, some of which already perform extremely well.  A subtler and more intelligent approach than that outlined by the Government is required if we are to ensure funds with good performance are not hamstrung to help those that perform poorly.”

It has also been suggested that, taking into consideration the volume of change currently within the LGPS, the government should set out a clear and reasonable timetable for reform after the General Election in May 2015.

PSE contacted DCLG for its thoughts on the recommendations, but at the time of publication a response had not been received.

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