Agenda item

On 21 June 2013, the Department for Communities and Local Government (DCLG) issued a call for evidence on the future structure of the Local Government Pension Scheme. A document was submitted on behalf of the Pension Fund Board, in consultation with the Chairman of the Pension Fund Board. On 1 May 2014, the Government published a further consultation document, which acknowledges the initiatives put in place by many administering authorities with regard to collaboration and the set up of collective investment vehicles.

Declarations of Interest:

None.

Key Points Raised During the Discussion:

1.    The Hymans Actuary tabled a briefing note summarising the Hymans Robertson cost-benefit analysis of fund merger and asset pooling (attached as Annex 4).  A further consultation had been announced on 1 May 2014 by DCLG, which acknowledges the initiatives put in place by many administering authorities with regard to collaboration and the set up of collective investment vehicles (CIVs).  Hymans had demonstrated that full Fund mergers would delay savings and so the DCLG consultation now rules out mergers and concentrates on asset pooling.  The value of local decision-making had also been recognised by the government.

2.    The Hymans Robertson representatives highlighted the finding that over the past ten years Local Government Pension Funds in aggregate would have achieved the same outcome if they had invested passively, with significantly lower fees.  However, they argued that they were not recommending that the whole of the LGPS goes passive.  Where a Fund has good governance it should continue what it has been doing.  Where it has poor governance it could move to a passive investment strategy. The representatives then ran through the consultation questions and highlighted the key issues to be considered.  They also stated that the consultation invites thoughts on reducing fund deficits although this is not one of the five consultation questions.

3.    The Hymans Actuary confirmed that there are currently no CIVs in the market for the LGPS.  The London Boroughs are presently setting up a CIV and counties may be able to use them.

4.    The Hymans Robertson representatives informed the Board that there are only eight to ten equity managers across the LGPS.  If CIVs are established, they are likely to be run by the same investment managers.  Benefits of CIVs could include a reduction in fees.  The Chairman stated that some investment managers were already voluntarily reducing fees to merged funds.  Further benefits of CIVs would include savings on transactional costs as purchases and sales could be netted off.

5.    Members were encouraged by the modification of the government’s plans in response to evidence.

6.    The Hymans Actuary suggested that there should be a good response rate to the consultation and that the concepts in the consultation would benefit all funds.

7.    The Chairman suggested that poorly run schemes could consider asking well run schemes to take them over.

8.    In response to a query, the Hymans representatives stated that a move to passive investment strategies by local authority pension funds would have no impact on the market in aggregate. 

9.    Members felt that there was a timing issue and that, by moving quickly, greater benefits could be achieved. 

The Board adjourned for lunch from 12.50pm to 1.30pm.

10.  Members suggested that the initial response to the call for evidence be reviewed and arguments repeated in response to this consultation.

11.  The Chairman stressed that the consultation response should highlight good governance and absorb the Hymans Robertson arguments.

Actions/Further Information to be Provided:

None.

Resolved:

1.    That the report be noted.

2.    That officers be authorised to respond to the consultation with views expressed within the forum of the Board meeting.

Next steps:

None.