UK to accelerate local authority asset pooling project

UK government ministers are growing impatient with a perceived lack of progress on pooling local authority pension assets, according to a senior government official.

Speaking at the Pensions and Lifetime Savings Association’s (PLSA) Local Authority Conference, Teresa Clay, head of local government pensions at the Department for Levelling Up, Housing and Communities (DLUHC), said: “Ministers are very focused on their goals and there is a level of impatience about the progress so far.

“It is recognised what a huge effort is being undertaken and what has been delivered, but there is some impatience on progress.”

The DLUHC will consult later this year on rules and guidelines for funds to expedite the move to pooling. This may include a prescribed timeline for remaining assets to be brought inside a pool.

The Local Government Pension Scheme (LGPS) consists of 86 pension funds in England and Wales and they have been working to pool their assets since 2016 as part of a 15 year project.

Eight pooling companies were established to offer funds across a variety of asset classes, to drive down investment costs through economies of scale the single funds could never achieve.

Pools now manage around half of the LGPS system’s £342 billion (€397 billion) assets, Clay said, with a further third in passive strategies that had been jointly procured. This leaves around one fifth of assets outside the pools. Clay said the government was keen to speed up the pooling of remaining assets, though she acknowledged that some directly owned local investments may not be transferred.

Ministers believe that pools should aim to reach between £40 billion and £50 billion in total assets to fully benefit from economies of scale.

Cost savings totalled roughly £200 million when last assessed in August 2021, and are forecast to reach £700 million by 2024.