The U.K. government plans to merge the 89 local government pension funds across England and Wales into six so-called British wealth funds, with an aim of both reducing costs and increasing investment in British infrastructure.
The announcement was made by George Osborne, chancellor of the exchequer, at the Conservative Party’s annual conference on Monday. Mr. Osborne outlined a four-point plan to “get Britain building,” which included the LGPS plan.
Each British wealth fund will have more than £25 billion ($38 billion) in assets.
“We are going to find new ways to fund British infrastructure that drives our productivity,” Mr. Osborne told the conference. “At the moment we have 89 — 89 — local government pension funds with 89 sets of fees and costs. It’s expensive, and they invest little or nothing in our infrastructure. So I can tell you today we are going to work with councils to create instead half a dozen British wealth funds spread across the country.”
He said this plan would save “hundreds of millions in cost, and crucially they will invest billions in the infrastructure of their regions.”
Further information published on the U.K. government website said that small local pension funds “lack the expertise to invest in infrastructure.” Of the £180 billion of assets in these plans, only 0.5% is invested in infrastructure projects. Countries with larger pooled public pension funds invest up to 8% in infrastructure, and 17% in housing and infrastructure, according to the website.
Mr. Osborne also announced the formation of an independent National Infrastructure Commission, which will analyze the U.K.’s long-term infrastructure needs.
The announcements were welcomed by Sir Merrick Cockell, chairman at the London Pensions Fund Authority, London, which has £4.9 billion in assets.
“For some time we have been calling on government to take into account the resources of the LGPS and invite U.K. funds to invest in these local projects,” he said in a statement.
LPFA has a number of projects with other pension funds underway, including a £10 billion asset and liability management partnership with the £5.2 billion Lancashire County Pension Fund, Preston, England. It also has a £500 million infrastructure investment joint venture with the £16 billion Greater Manchester Pension Fund, Manchester, England.
