July budget announcement indicates willingness to work more closely with the LGPS on reform proposals

The government has been praised for striking a more positive tone on the reform of the Local Government Pension Scheme (LGPS) in the summer budget announcements.

In the main document issued on July 8th, when Chancellor George Osborne presented his post-election budget, the government said it wanted to work with LGPS administering authorities to ensure that they pool investments to significantly reduce costs, while maintaining overall investment performance. The move has been welcomed as a move away from mandatory investment in index-tracking products for listed markets, or forced mergers, both of which have been mooted as reforms in the recent past.

In the budget statement, the government said it will publish a consultation paper later in 2015, which will set out detailed criteria for delivering savings. It added that the paper will include backstop legislation, “which will ensure that those administering authorities that do not come forward with sufficiently ambitious proposals are required to pool investments.”

Commenting on CIPFA’s Public Finance website, Local Authority Pension Fund Forum chair, Kieran Quinn, said that the budget statement was much more positive than previously and created an opportunity for administering authorities to work with the government. He added that a loosening of investment regulations by government could help councils collaborate more on investment initiatives.

A number of local authorities are already working together on investment projects, which aim to create economies of scale and so reduce costs. These include the common investment vehicle being set up by a number of London boroughs, and the £10 billion joint asset-liability management venture between the London Pensions Fund Authority and Lancashire County Pension Fund. Some local authority funds, including West Midlands and Strathclyde, are supporting the Pensions Infrastructure Platform, which brings together like-minded UK institutional investors to invest in infrastructure assets. In other cases, neighbouring local authorities are working together to share services and save costs, including pensions administration.