An efficient and secure Local Government Pension Scheme hinges on more than oversimplified cost savings says NAPF
14 July 2014
The National Association of Pension Funds (NAPF) today (Monday) commented on the Department for Communities and Local Government’s (DCLG) consultation ‘Local Government Pension Scheme: Opportunities for collaboration, cost savings and efficiencies’1.
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.
Joanne Segars, Chief Executive, NAPF, said:
“The NAPF supports the Government in its wish to secure a LGPS that delivers good outcomes for its employers, local taxpayers and scheme members. But the Government is mistaken in thinking the LGPS can be treated as a homogenous whole when it is comprised of 89 different funds, some of which already perform extremely well. A subtler and more intelligent approach than that outlined by the Government is required if we are to ensure funds with good performance are not hamstrung to help those that perform poorly.”
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 after the General Election in May 2015.
The full consultation response can be found here.
Notes to editors:
Footnote 1 - the consultation applies to the 89 LGPS funds in England and Wales.
The NAPF is the leading voice of workplace pensions in the UK. We speak for 1,300 pension schemes with some 16 million members and assets of around £900 billion. NAPF members also include over 400 businesses providing essential services to the pensions sector.
Lucy Grubb, Head of Media and PR, NAPF, 020 7601 1726 or 07713 073023, [email protected]
Eleanor Bennett, Press Officer, 020 7601 1718 or 07825 171 446, [email protected]