LGPS Perspectives on Proposed Pension Reforms: Anticipating the Chancellor’s Mansion House Speech

With Chancellor Rachel Reeves’ Mansion House speech set for November 14, the pension sector is buzzing with speculation about the future of the LGPS. Through a survey conducted by LAPF Investments Magazine, we gathered insights from the LGPS community to gauge expectations and potential reactions to these proposed reforms.

Survey results and key insights:

Do you think the chancellor will propose that the LGPS merges into a single fund?
When asked whether the chancellor might propose merging the LGPS into a single fund, only 15% of respondents saw this as a real possibility:

Yes: 15%

“It would make a big headline and distract from other issues. Not sure she’ll force it through, though,” noted one respondent.

Another respondent considered that this would, “reduce the number of CIOs/senior staff being paid to look after a similar/same remit.”

No: 85%

Against the 15% that feel a merger into one single fund is on the cards, 85% expressed scepticism, with many feeling that current pooling structures could achieve similar outcomes without the upheaval of a full-scale merger:

“I do not think they will look to the LGPS to merge into one fund, but if they do it will be very unpopular with the larger LGPS funds that have yet to pool their equity investments. I believe they will look towards consolidation, but whether this be of pools or of funds I do not know. It all depends on which pools/funds have the ear of the minister.”

Another respondent mused: “The LGPS is a success story. Why gamble with that? There is no guarantee that a single merged fund would make the same gains.”

There was the suggestion that, “if not fund mergers, there may be proposals for pool mergers.”

“Certainly not a single fund,” one respondent suggested, “although indicating a direction of travel that leads to fewer funds is possible. However, even that would require a project of unprecedented scale and the impact on scheme members (e.g. the ability of funds to resource administration during years of uncertainty) needs to be properly considered.”

Do you expect the chancellor to mandate UK pension funds to invest in specific asset classes during her speech next week?
The potential for Reeves to mandate UK pension funds to invest in specific asset classes, such as British stocks or infrastructure, also sparked varied reactions. Sixty-four per cent of participants indicated they did not expect the chancellor to impose such a mandate, citing concerns over fiduciary duty:

No: 64%

One respondent shared, “Expect there to be something but, at this stage, comply or explain,” which was echoed with the suggestion from another that, “the government is clearly content to wave the stick of mandation, but it really does not want to use it. A heavy handed ‘comply or explain’ that comes up just short of mandating, seems instead more likely.”

However, 36% of respondents expect some push towards UK-centric investments to stimulate growth, with one noting, “It will likely be as close to mandated as possible without directly overruling fiduciary duty.”

Yes: 36%

“The government seems to view the LGPS as a cash cow, but at the same time fails to realise that this money is for the future benefits of the members of the pension fund.” Reflecting on the road ahead, a respondent said: “I expect there will be an attempt to mandate investment, but it will need primary legislation and will require a full review of the fiduciary duty requirements. I don’t agree that the proposals should be made, or that if they are made, they will be accepted by the LGPS community, but if the Labour government are to fulfil their mandate, the proposals will be made.”

One respondent feels that the government “wants to direct how pension funds invest”, with another adding, “I think the chancellor may go down this road, but this is very much a mistake, as this amounts to using the LGPS to pay for political ideas. Pensions need to be beyond that short-term approach.”

Our survey highlights a mix of anticipation and caution within the LGPS community. While there’s openness to reform, there’s also a clear desire that reform does not ignore the fundamental responsibilities of the LGPS.

LAPF Investments will publish a post-speech analysis, capturing reactions and assessing the long-term implications of the chancellor’s vision for the LGPS. With both anticipation and reservation, the LGPS community is ready to see if Reeves’ proposals will indeed bring the bold changes she has suggested.

This editorial reflects survey responses up to November 11, 2024, offering a snapshot of LGPS sentiment ahead of the chancellor’s Mansion House address.