- Conference
- 2024 Local Government Service Group Conference
- Date
- 9 February 2024
- Decision
- Carried
Conference notes ongoing endeavours by HM Government to manoeuvre the LGPS to serve its own political objectives.
This goes back to October 2016 when the then chancellor, George Osborne told the Conservative Party conference of his intentions in relation to the LGPS and this included his aspiration that the LGPS invests in the nation’s infrastructure.
More recently on the 10 July 2023 Chancellor Hunt’s Mansion House Speech took this worrying agenda several steps further by indicating:
1) plans to compel LGPS pools to raise their investment level to at least 10% of funding to private equity;
2) that the government intends to amend regulations to require funds publish plans to invest up to 5% of their assets under management in projects supporting levelling up, and update these every three years;
3) a further consultation of the 83 funds on mergers of separate LGPS funds.
One merger has already occurred. On 1 April 2020 Northumberland County Council Pension Fund merged into Tyne and Wear Pension Fund. The prospects of further mergers being taken forward could result in just one fund, say for the south-west and west of England or that the number of pools maybe reduce or both.
The potential vulnerabilities of fewer LGPS funds, or indeed pools, arguably come to the fore when related to events in September 2013 when the government announced its plans to privatise the Royal Mail. Its pension scheme: the Royal Mail Statutory Pension Scheme (RMSPS) was a funded scheme like the LGPS i.e. funded by contributions from workers and the growth in the scheme’s assets.
During his 2012 budget speech, Chancellor George Osborne announced that the government would be absorbing the £28 billion worth of assets held by the pension scheme, which it could use to pay down the national debt. Could this be a fate awaiting an LGPS rendered vulnerable by there being fewer separate entities and a freedom to pursue its fiduciary duty to invest in the best interest of scheme members fettered by governmental regulation?
A particular and serious dilemma resulting from Brexit has been placed at the door of the LGPS by the government in its 11th July 2023 consultation: “Local Government Pension Scheme (England and Wales): Next Steps on Investments”. The consulting department being the Department for Levelling Up, Housing and Communities (DLUHC). Within paragraphs 88 to 90 of the consultation the objective of the government is to see LGPS funds diverted into venture capital and growth equity related to levelling up. This will include infrastructure! There is no mention in the consultation of the drivers for this. But it is this: Pre Brexit the European Investment Bank (EIB) financed some of the most critical infrastructure projects in the UK. Post Brexit the UK has lost access to EIB finance!
In an attempt to offset this the UK created or expanded 4 development banks to try and replace the lost investment. However, they have only been able to replace a third of the EIB investment.
Cue the LGPS and the reason for including Question 12 in the consultation!
Do you agree that the LGPS should be supported to collaborate with the British Business Bank to capitalise on the Bank’s expertise?
What is going on here? Conference notes:
a) the evident reluctance of the government to capitalize its development banks so that they can replace the lending capacity of the EIB;
b) the government’s intent to see LGPS funds backfill the lack of capital in their own development banks;
c) the government’s disregard towards the management of risk within the LGPS (evidenced by the mention of venture capital, which is at the risky end of the investment spectrum);
d) and the government’s apparent disregard towards the fiduciary duty carried by the LGPS, to act in the best interests of its scheme members.
Any change since? Conference notes:
The Autumn Statement contained the government’s response to the consultation. The government appears to have largely ignored its consultation and is proposing a series of non-mandatory requirements in line with their initial position! This included setting a direction towards fewer pools, revised guidance to implement a 10% allocation ambition for investments in private equity and to require funds to set a plan to invest up to 5% of assets in levelling up the UK, and to report annually on progress against the plan. In an attempt to reduce a barrier to bringing these developments into being a leading pensions publication has learned that the government is looking at whether the law on fiduciary duty needs to change.
Concerns therefore remain about the government’s proposed use of powers to advance its agenda. The LGPS exists to pay members’ pensions, not to deliver on government investment policy. In this context Conference argues there is no place for sitting back and awaiting developments which could have serious impacts for Trade Union members with a stake in the LGPS.
Conference therefore calls on the Local Government Service Group Executive to liaise with the National Executive Council and Labour Link, to work with local UNISON regions and branches, and encourage the Trades Union Congress and Trades Union Councils to call on the Department for Levelling Up, Housing and Communities (DLUHC) to respect the objectives and freedom of the Local Government Pension Scheme to invest in the best interests of its scheme members only, its existing fiduciary duty, and to respect the existing pooled structure within which individual LGPS funds determine their investment priorities.