The U.K.’s Society of Pension Professionals is calling on the nation’s government to “seriously reconsider” its position on planned reforms to local government pension plans, including a wave of reallocations to Local Government Pension Schemes.
The SPP, the representative body for a wide range of providers of U.K. pensions advice and services, made its comments in feedback to the government’s "LGPS Fit for Future" consultation. The consultation period began Nov. 14 and is due to close on Jan. 16.
Since 2015, the U.K.’s 86 administering pension fund authorities have moved to consolidate management of their investments through eight LGPS asset pools. As of March 31, 45% of LGPS assets, amounting to £178 billion ($225 billion), was invested through these pools.
In November 2023, the U.K.’s previous Conservative government set out its expectation that all authorities should pool all listed assets by March 2025. The current Labour government signaled that it would consider legislating to mandate pooling if there was deemed to be insufficient progress towards the March 2025 deadline.
“The government has indicated that it expects proposals to be submitted by 1 March 2025, i.e. within less than two months of this consultation closing ... It seriously constrains the ability of pools to undertake a full assessment of the merits of the different options which government is intending to prescribe,” the SPP response to the LGPS consultation said.
“We are not at all convinced of any merit in forcing those pools to change their approach, incurring further unnecessary costs and fundamentally changing the relationship between partner funds that has built up successfully over the last decade,” it continued.
Further proposed LGPS reforms have been put forward in the consultation, with U.K. Chancellor of the Exchequer Rachel Reeves inspired by the Canadian pension model following an official visit to the country in August.
According to the U.K. government proposal, the Canadian model has key strengths including the integration of investment advice, consistent delegation and in-house investment management, which enhances control over investments and reduces reliance on external managers.
“The proposed changes to the U.K. LGPS funds are likely to result in a period of stagnation for U.K.-focused investments. Delegating investment strategy implementation to pools will require substantial time, investment, and resources to attract and retain the necessary talent,” said Anthony Dalwood, CEO of alternatives asset manager Gresham House, in its own response to the consultation. Gresham House has 19 LGPS pool clients, representing 51 fund commitments at of Dec. 31.
“Furthermore, the complexity of the transfer of assets should not be underestimated. The process will be costly and complex, as pools must familiarise themselves with the legacy strategies and liabilities of all their partner funds,” he said.
Dalwood also claimed that executing deals for less than £50 million required significant resource and a skill set distinct from those required for larger core infrastructure transactions, and these deals risked going unfunded without changes to the current proposals.
The LGPS is one of the world’s largest funded pension plans, managing the pensions of 6.7 million plan participants and with investable assets of £392 billion ($496 billion) as of March 2024.