Agenda item

In November 2024, the government published a consultation entitled “Local Government Pension Scheme (England and Wales): Fit for the future”. This paper explores the key implications for the Surrey Pension Fund of government proposals in this consultation.

Speakers:

Neil Mason, LGPS Senior Officer

Steve Turner, Mercer

Key points raised in the discussion:

1.    The LGPS Senior Officer noted that there was a clear message from the Government on what it expects the structure of asset pools to be: Financial Conduct Authority (FCA) regulated entities with internal management capability, with funds taking their primary investment advice from their pooling partners. He noted that the Government seeks to capture local growth plans within pension fund investment strategies. Defining “what local investment looks like” for Surrey was an open issue. The Fund would need to work with local partners and the BCPP pool if each had a different view on how they approach investing in the local regions.

2.    The LGPS Senior Officer congratulated the Committee for anticipating the improvement in LGPS governance, having created the role of LGPS Senior Officer in 2022. The Government proposed that would be a biennial governance review. Several of the proposals in the Government's consultation were anticipated in the 2030 BCPP Strategy. A joint response of the eleven partner funds and BCPP, and a Surrey response were being formulated, a draft to be shared with the Committee before Christmas. A meeting would be scheduled in early January to discuss the proposed response.

3.    A Committee member queried whether the pools would be geographically separated covering different regions and asked whether the strategy of requiring investment geographically, would need to be proportionate to the distribution of the members of the pool. The LGPS Senior Officer noted that it would be a prescribed percentage of the portfolio that the Fund would look to match to local growth plans (currently pension funds could invest up to 5% of its portfolio in its own administering authority location). The Fund had made an allocation of the portfolio to the BCPP UK Opportunities Fund. The partner funds and BCPP need to define a mechanism that captures the local growth strategies, Surrey would have its own local strategy which BCPP would seek to implement.

4.    The Chairman noted the disbanding of the Local Enterprise Partnerships (LEPs) and the Council taking on the responsibility for economic development; he noted the importance of having a mechanism managed by BCPP for private asset investment. A Committee member noted a previous model of the South East England Development Agency and its regional assembly which were scrapped.

5.    A Committee member noted that having reviewed the ministerial statements, the intention was for five large regional pools to be formed and he noted concern in the consolidation of pools into a smaller number. The Government’s focus on regional investment could potentially mean that existing pools would be broken up and pension funds reorganised, or pension funds would be merged. The LGPS Senior Officer explained that the pools must respond to the Government by the end of March setting out how they meet the consultation’s criteria. He noted that the Government did not seek to regionalise the pools but sought further collaboration.

6.    A Committee member noted that his concern on the collaboration between funds was that the disruption and costs of changing administration for a pension fund would exceed the long-term efficiency sought. The Chairman shared that concern.

7.    A Committee member noted that the Government’s proposals would shift power to the pools with those providing investment advice, and he noted that at a local level the Committee would lose a significant amount of influence. He asked what the future of the Committee might be. The Chairman noted that the Committee remains responsible for the Fund’s administration, to undertake the assessment of the liabilities, the actuarial valuation and set the overall investment strategy; but it was anticipated that although principal investment advice would be taken from BCPP, there were discussions around independent members or advisors to the Committee.

8.    The LGPS Senior Officer explained that the Government’s premise was that most of the value in investment returns would be provided through strategic asset allocation, the investment beliefs which include RI and a local approach would still be owned by the Committee as the sovereign asset owner. How that translates into asset allocation and the level of responsibilities retained by partner funds was contentious.

9.    The Mercer representative noted that going forward individual committees would have to compromise more and pools would have to find a way to offer more choice of how funds invest in certain asset classes. The LGPS Senior Officer reiterated the need to ensure that the governance and oversight structures are robust, to provide influence in the way the company runs and the way assets are managed.

10.  A Committee member highlighted there were a few hundred non-local government organisations in the Fund that the Government could not stop them from going elsewhere. The LGPS Senior Officer explained that the other employers in the Fund would be required to be part of the administration authority in their region, to change the administration authority an application to the Secretary of State was needed.

RESOLVED:

Noted the content of this report and proposed schedule of consultation.

Actions/further information to be provided:

1.    16/24 - The LGPS Senior Officer will share a draft Surrey response with the Committee before Christmas and will consult with the Committee members in early January.