LGPS reforms welcome, but ending the postcode lottery and focusing on sustainability should also be prioritised, says LCP

The LGPS reforms announced by the Chancellor in the Mansion House speech are positive, but there are a number of areas in which the government should go further according to a new blog from LCP.

• Ending the postcode lottery: There needs to be greater consistency across the LGPS, and a step away from the “postcode lottery” for employers which affect the ongoing contribution levels and charges when employers exit a Fund. The approach to exits varies much more than just the impact of the relevant factors such as the demographic make-up and investment strategy of the Funds. The proposed governance changes should help to deliver greater consistency, but more is required to ensure a consistent approach to funding.
• Getting the governance of the pooled structure right: As we have seen in the wider defined benefit universe, combining asset allocation advice and investment management does not automatically lead to better outcomes. Appropriate structures will need to be established to monitor the implementation, ensure the desired efficiencies are achieved and hold the Pools to account when needed.
• Maintaining a true local link: The proposals to develop expertise within the Pools to oversee and manage local investment are positive. Funds have shown the impact and positive return local investments can deliver, and developing specialist expertise will help with more efficient delivery. Many participating employers such as charities and housing associations could also benefit from the assets being invested in local communities.
• Sustainability needs to be at the heart of growth: It is disappointing there is limited focus on sustainability alongside pooling. Environmental and social sustainability needs to be embedded in any strategy for the growth to be economically sustainable. Expanded Pools with greater autonomy over investment decisions should have sustainability and ESG at the heart of their remit.

Tim Gilbert, Partner at LCP, commented: “Overall, the proposals are positive but as always, the devil is in the detail. The LGPS is huge with more than £400 billion of assets across England and Wales. Despite this, it should not be treated as a single mammoth scheme. There are more than 20,000 participating employers across the country, and between them they will want to adopt a range of strategies. Pooling could deliver better returns, but if these benefits do not lead to a reduction in contributions and employers need to divert resources away from delivering vital local services to put more money into the funds than is needed the net impact will be negative.”