Reflections on the future: The PLSA’s annual Local Authority Conference

Written By: Joe Dabrowski Deputy Director of Policy Pensions and Lifetime Savings Association

Joe Dabrowski from the Pensions and Lifetime Savings Association reflects on the 2024 Local Authority Conference.

As the UK political parties began sharing their manifestos ahead of the General Election, representatives of the Local Government Pension Scheme (LGPS) arrived at the Pensions and Lifetime Savings Association’s (PLSA) annual Local Authority Conference. Held against the backdrop of political uncertainty, this year’s conference provided a platform for reflection on past achievements and deliberation on future challenges for the industry.

Addressing the current landscape
The Local Authority Conference served as a timely review of the LGPS’s journey so far, acknowledging its growth and adaptation amid a climate of rapid change and reform. The scheme, which boasts over 7.1 million members and assets exceeding £425 billion, stands as one of the largest funded defined benefit pension schemes globally. Key discussions focused on the scheme’s resilience in the face of economic fluctuations, its capacity for reform, and its role in safeguarding retirement futures across local government and associated sectors.

The three-day event opened with this conference’s traditional discussion of the England & Wales Scheme Advisory Board’s Annual Report and what lies ahead, for both the England & Wales Scheme and the funds in Scotland and Northern Ireland.

For the England and Wales funds at least, productive finance, pooling and consolidation are high on the agenda. Guidance on asset pooling is almost certainly a topic near the top of the list at the Department for Levelling Up, Housing and Communities (DLUHC) at the moment.

The PLSA has been proactive in arguing for the right framework for the orderly transition of fund assets into the eight designated pools. The PLSA and its members are now considering the relationship between funds and pools and aim to publish a paper on this in due course.

Future outlook: challenges and opportunities
Looking ahead to 2035, conference participants engaged in forward-thinking dialogues about the future shape of the pensions sector. Key considerations included demographic shifts, technological advancements like AI, and broader socioeconomic factors impacting pension sustainability. These discussions were framed around the PLSA’s ongoing vision for the future of the pensions system, emphasising the need for adaptable policies that transcend electoral cycles and prioritise long-term stability.

Ahead of the conference the PLSA surveyed the LGPS community on a broad range of topics to measure their attitudes to both on-going and potential future regulatory and policy initiatives. Local government pension funds are braced for significant reforms over the next decade, but they appear uncertain on what the future may hold.

The climate of rapid change and reform that has characterised the LGPS over the last decade is expected to continue by those who work within it, according to the latest survey by the PLSA.
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 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 all of 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%).

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.

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 pension funds and asset pools with a focus on the type and quality of outcomes administering authorities should aim to achieve.

Member engagement and financial literacy
The conference also highlighted collaborative efforts aimed at enhancing member engagement and financial literacy.

Recruitment and retention within the pension sector remains a significant challenge, worsened by the pandemic and the shift to remote working, allowing funds to recruit nationwide. A dedicated session on talent management addressed practical solutions to these challenges, highlighting the importance of attracting and retaining skilled professionals within the LGPS.

Another popular session was the PLSA’s Retirement Living Standards. The latest update revealed increases in the amounts needed to fund minimum, moderate or comfortable retirement lifestyles, reflecting changing expectations and the rising cost of living.

For many LGPS members in modestly paid jobs, understanding their potential retirement lifestyle and associated costs is crucial. The working group’s proposal, developed through a series of roundtables, aims to enhance member communication and ensure a clearer understanding of retirement planning.

LGPS employers also play a pivotal role, with over 15,000 active employers in England and Wales, 500 in Scotland, and 170 in Northern Ireland. The pressures of the cost-of-living crisis, local authority funding challenges, and questions regarding funding surpluses have reshaped the landscape. The conference addressed these issues, exploring strategies to balance the long-term health of the scheme with employer needs.

Additionally, initiatives such as the LGPS employer guide and ongoing policy developments reflected a commitment to supporting local authorities and employers in managing their pension obligations responsibly.

Speakers emphasised the role of education and communication in empowering members to make informed decisions about their retirement savings. Discussions focused on the importance of clear, accessible information and the development of user-friendly pension dashboards to enhance transparency and accessibility. By promoting greater financial literacy and member empowerment, stakeholders sought to build trust and confidence in the LGPS among current and future generations of scheme participants.

Insights continue into the future
The 2024 LGPS Local Authority Conference highlighted the scheme’s resilience and adaptability in an era defined by change. From regulatory reforms to demographic shifts and technological innovations, delegates reaffirmed their commitment to shaping a sustainable pension system that meets the needs of current and future generations. As political landscapes evolve, the LGPS remains steadfast in its mission to safeguard retirement incomes and promote financial security across local communities.

It is likely that post-election the LGPS will be back at the top of the government’s agenda. Although the scheme is a global giant it operates under complex regulations. Streamlining governance could enhance its efficiency and outcomes. The new government should implement the “Good Governance Project” recommendations: establish common standards for governance and improve the quality of outcomes.

The stage has been set to navigate forthcoming challenges and seize opportunities, ensuring a robust and inclusive pension system.

The ongoing evolution of the LGPS underscores the importance of proactive governance, strategic planning, and stakeholder engagement in shaping its future trajectory. By fostering a culture of innovation and inclusivity, the LGPS aims to deliver sustainable outcomes and uphold its role as a cornerstone of retirement provision in the UK. As we look ahead to 2035 and beyond, the principles of transparency, accountability, and pension member-centricity will remain at the forefront of efforts.

The event not only provided a platform for reflection and dialogue but also reaffirmed the scheme’s commitment to navigating change and shaping a sustainable future.