In July, the King's Speech announced a new Pension Schemes Bill; many are wondering what the next steps are for this.
At the Pensions and Lifetimes Savings Association annual conference in Liverpool in October, Pensions Minister Emma Reynolds explained that the UK Government must first process the responses from the call for evidence for Phase One of its Pensions Review, covering investment and value for members of DC arrangements and the consolidation and governance of Local Government Pension Scheme funds.
The objective of the consultation as regards LGPS funds is to consider the potential implementation of a "Canadian-style" pensions model to consolidate funds and achieve greater scale that might then fuel investments in key national infrastructure, housing and transport projects to "unlock" UK economic growth.
While a general prevalence of surplus in the LGPS might suggest that the redeployment of pensions capital to fuel economic growth to be a winning idea, many responses to the consultation have been lukewarm at best. The call for evidence, as regards the LGPS, covered matters that, in Scotland, fall within the Scottish Government's remit. However, were the same questions to be asked in Scotland the answers might be very similar.
In England and Wales, the LGPS Scheme Advisory Board's response agreed that the LGPS is positioned to make investments that could help grow the UK economy but warned that "anything which is seen to dilute the fiduciary duty or distort the decision-making process at the expense of returns is likely to be resisted by funds, other scheme employers and member representatives." This reflects the Board's recently published statement on balancing administering authorities' fiduciary duties with lobbyists' demands.
On this view, and as governing legislation seems to require, all other concerns than the members' best financial interests are secondary. And any fund with a surplus might more naturally be expected to lock in its gains and better secure its members' benefits than to play the market, even if this might be for the greater good.
This certainly aligns with what we have witnessed in the wider market in recent years where the emphasis has undoubtedly been on derisking. This year has been a record year for insured buy-ins, with 134 deals completed in the first six months of the year worth a combined £15.3bn, and the market is expected to grow next year to between £40–60bn.
To date, it has not been common for LGPS funds to enter into buy-in agreements, but we helped complete the first one in Scotland, for Aberdeen City Council Transport Fund with Rothesay Life in 2021, and the third such deal in the UK was recently completed between Merseyside Pension Fund and Aviva. At a time when LGPS funds can increasingly afford to make more obviously safe investments such as these, it is hardly surprising that there appears to be limited appetite for the additional risks of mandated pension investment.
If you would like to discuss anything raised in this blog in more detail, please get in touch with a member of the pensions team or your usual Brodies contact.
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