The U.K. government has announced plans to work with the Local Government Pension Scheme on the pooling of the investments, in an effort to cut costs.
In its summer 2015 budget, announced by Chancellor of the Exchequer George Osborne on Wednesday, the government said it would work to “ensure that (local government pension funds) pool investments to significantly reduce costs, while maintaining overall investment performance.” England and Wales have 89 separate local government pension funds with combined assets of more than £190 billion ($298.2 billion.)
Local authorities that administer these pension funds will be invited to submit their own proposals for pooling, to create common criteria. The government will publish a consultation paper and seek comments later this year, setting out criteria.
The paper will also feature backstop regulation that would “ensure that those administering authorities that do not come forward with sufficiently ambitious proposals are required to pool investments,” said budget documents published following Mr. Osborne’s announcement.
A number of pension funds in the LGPS are already working together. Last week, the London Pensions Fund Authority, London, and Lancashire County Pension Fund, Preston, England, announced they had formed a £10 billion asset liability management partnership, the Lancashire and London Pensions Partnership. The LLPP, which is seeking authorization from the U.K.’s Financial Conduct Authority, will provide jointly managed administration and pooled asset and liability management activities. Susan Martin, LPFA CEO, said in a statement last week that the LLPP estimates combined cost savings of more than £32 million within five years. LPFA has £4.8 billion of assets, and Lancashire County Pension Fund has £5.7 billion of assets.
Elsewhere in the budget, Mr. Osborne announced that the government is looking at whether to reform tax relief for retirement plans to strengthen the incentive to save. “The government is interested in views on the various options that have been suggested for how the system could be reformed,” the budget documents said. Options range from a fundamental reform of the system to less radical changes, such as altering various tax allowances.
The government also revealed that it is postponing the implementation of a secondary market for annuities, allowing defined contribution participants to cash in their annuities as part of retirement benefit reforms that went into effect in April. The decision followed a consultation, and the government will delay implementation until 2017, “in order to ensure there is a robust package to support consumers in making their decision.” The government said it would set out further plans for the secondary annuities market in the fall, under Finance Bill 2016.
Also, effective immediately, money managers will be required to pay capital gains tax on carried interest, the budget documents said. “The government will also launch a consultation paper on the circumstances in which fund managers’ performance-related returns are to benefit from (capital gain tax) treatment,” setting out which performance fees will be capital in nature.