UK looks to accelerate local authority asset pooling project

UK government ministers are growing impatient with a perceived lack of progress on pooling local authority pension assets, according to a senior government official.

Speaking at the Pensions and Lifetime Savings Association’s (PLSA) Local Authority Conference, Teresa Clay, head of local government pensions at the Department for Levelling Up, Housing and Communities (DLUHC), said: “Ministers are very focused on their goals and there is a level of impatience about the progress so far.

“It is recognised what a huge effort is being undertaken and what has been delivered, but there is some impatience on progress.”

As part of a wide-ranging consultation on the future of the LGPS, the DLUHC will consult later this year on rules and guidelines for funds to speed up the move to pooled arrangements. Clay said this may include a timeline for the remaining assets outside of pools to be brought into a pool.

The 86 pension funds that make up the Local Government Pension Scheme (LGPS) have been working to pool their assets since 2016 in what is expected to be a 15-year project. Eight pooling companies have been established offering funds across a variety of asset classes, with the aim of scaling up buying power and driving down investment costs for the LGPS.

Approximately half of the LGPS system’s £342bn (€397bn) worth of assets was now managed by one of the pools or transitioning to a pooled arrangement, Clay said, with a further third in passive strategies that had been jointly procured.

This left roughly a fifth of assets yet to be pooled. While some directly owned local investments may not be able to be transferred to a pool, Clay said the government was keen to accelerate the remaining assets moving to pools in the near future.

Ministers believe that pools should aim to reach between £40bn and £50bn in total assets to fully benefit from economies of scale.

Cost savings totalled roughly £200m when last assessed in August 2021, and are forecast to reach £700m by 2024.

Mike O’Donnell, CEO of London CIV, agreed that the pooling project needed to go “further and faster”.

“Progress has been a bit slower and more incremental that I would have hoped. “I think the absence of a sufficiently clear strategy and framework regarding pooling means we’re still suffering a bit.

“It’s important we have a good, strong framework and I would encourage us all to be brave. I would love to see local government and the LGPS Scheme Advisory Board take the lead on it, not just wait for government to do it to us.”

He also called for greater consolidation of investments and collaboration between funds in areas such as commercial property investment, highlighting that across the 32 London LGPS funds there were more than 25 asset managers employed in this asset class and no assets pooled within the London CIV so far. 

Mike continued: “Although some good progress has been made, we are leaving money on the table and, in the absence of real consolidation, will not deliver the full benefits of scale in terms of savings and addressing the challenges of the climate crisis.”

© London CIV 2021
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