DCLG consultation on LGPS reform: opportunities for collaboration, cost, savings and efficiencies – An NAPF response
The NAPF has responded to the Department for Communities and Local Government’s (DCLG) consultation ‘Local Government Pension Scheme: Opportunities for collaboration, cost savings and efficiencies’.
In its response to the DCLG’s consultation the NAPF draws attention to the narrow vision of the Government’s consultation which, rather than asking how LGPS funds can secure liabilities and reduce deficits, focuses purely on how they can reduce costs. The Government’s proposals conclude that significant cost savings can be made by using passive investment strategies and collective investment vehicles (CIVs). These savings are substantial, if fully realised, but represent only a tiny proportion of the LGPS’s £47bn deficit.
The NAPF instead recommends the Government should focus on identifying good and bad performance within the LGPS at a fund level, with a view to bringing poorly-performing funds up to standard through targeted regulatory interventions.
Key recommendations from the NAPF’s consultation include:
- The Government should focus on individual fund performance within the LGPS with regulatory intervention to bring poorly-performing funds up to standard.
- There should be no mandatory use of passive investment. Instead a comply or explain approach should be adopted and regularly reviewed by various external parties.
- Investment in one type of CIV should not be mandatory. Funds should instead have the flexibility to look at alternative ways of co-investing.
- Developing well-governed CIVs may require the revision of LGPS regulations. The Government should be prepared to make these changes as necessary.
- Taking into consideration the volume of change currently within the LGPS, the Government must set out a clear and reasonable timetable for reform that extends beyond the General Election in May 2015.