Local Government Pensions Scheme braced for significant reforms over next decade but uncertain on what the future holds

The climate of rapid change and reform that has characterised the Local Government Pension Scheme (LGPS) over the last decade is expected to continue by those who work within it, according to the latest survey by the Pensions and Lifetime Savings Association (PLSA).

The LGPS is the national pension scheme for people working in local government or working for other employers that participate in the scheme. It is the largest funded defined benefit (DB) pension scheme in the UK, and one of the biggest in the world. It has 7.1 million members, over 15,500 employers, and assets totalling more than £425 billion.

The PLSA asked the LGPS community a broad range of questions to measure their attitudes to both on-going and potential future regulatory and policy initiatives. The results are being presented to delegates at the PLSA’s Local Authority Conference, the largest conference of its type, in the Cotswolds this week.

The regulatory initiatives respondents believe will have the greatest impact over the next 10 years include: government demands to invest more in the UK (38%), pensions dashboards (38%), the green transition (35%) and LGPS consolidation (29%).

Views on the governance, administration and regulation of the LGPS
Two-thirds of those surveyed (67%) believe LGPS funds should become separate legal entities from the Authority, while half believe Pension Boards should remain as part of the LGPS Governance (52%).

A quarter (26%) believe administration services should be consolidated within the LGPS, but this increases to 39% among those who believe the pension regime requires major reform compared to 10% among those who believe it only requires minor reform.

Six in 10 respondents (62%) believe there should be one regulator for both DB, DC private pensions and funded and unfunded public sector pensions.

A quarter of all respondents (25%) believe the Department for Work and Pensions (DWP) should regulate the LGPS by 2035. However, funds are more likely to think they should be regulated by TPR (29%) than DWP (23%).

When asked about future regulation and supervision of the LGPS, one in five believe TPR (21%) or the Department for Levelling Up, Housing and Communities (DLUHC) (19%) should regulate the LGPS by 2035. Very few believe HMT should regulate the LGPS (2%).

Views on consolidation within LGPS
There are mixed views on consolidation among LGPS funds with two in five (43%) who support it and a third (32%) who oppose it.

The main benefits of consolidation are seen to be overall lower costs (60%), better administration (47%), governance improvements (44%), better delivery of member services (44%) and improved investments (42%).

In contrast, the main disadvantages of consolidation include lack of pension fund control (54%), and lack of accountability (54%). A third also feel there are timing implications (37%), while a similar proportion (35%) believe it could impact pooling arrangements in the future.

A third believe there should be the same number of Funds as now (36%). However, half believe there should be fewer; a quarter (24%) saying there should be about half the number, and a similar number (24%) saying there should be about a quarter of the number of Funds as there currently are.

Joe Dabrowski, Deputy Director of Policy, PLSA, said: “The LGPS operates in a complex regulatory environment with different parts of the LGPS required to report to a number of disparate bodies. We have called for the new Government to put into action the recommendations from the LGPS Scheme Advisory Boards’s ‘Good Governance Project’ to develop a common standard on governance, and foster effective relationships between pensions funds and asset pools with a focus on the type and quality of outcomes administering authorities should aim to achieve.”