LGPS Next Steps on Investments – Government Response 

Jill Davys

Head of LGPS
(Thursday, Nov, 23, 2023)
|   5 mins

Overview 

Alongside a broad range of pensions proposals included in the Autumn Statement, there were references to the LGPS including seeing LGPS pools of more than £200bn by 2040 and keeping guidance at a 10% allocation ambition to private equity.  

The Government has issued a response to the LGPS Consultation which closed on 2nd October 2023 which must be a record on LGPS consultations only taking just over 7 weeks to respond and taking into account up to 152 responses (some late nights must have been had at the Department to ‘carefully consider’ all responses). It would seem the government is pushing ahead with most of the proposals laid out in this summer’s consultation. For reference, we’ve included a link to our brief note on the consultation issued in July.   

As noted earlier, the speed of turnaround on this consultation has come as a surprise. Clearly there will be more detail in the revised guidance which will be awaited with interest. The fact that the government is maintaining a 2025 deadline, which after all is less than 18 months away, for the transfer of assets, should we expect to see guidance issued at an equally swift pace? Most will want to see the updated guidance and take the time to consider the practicalities of implementation before moving forwards.  

This note is designed purely to highlight the key points coming out of the consultation response. Like others we will be reflecting on how best to support our clients going forwards and provide updated thoughts in due course. 

Please find the key points from the Consultation response below: 


Pooling
 

  • 2025 stays as the pooling transition deadline for transition of liquid assets to the pool on a comply or explain basis. 
  • The Government Actuary’s Department estimate that the LGPS could reach around £950 billion in assets in 2040, the government is therefore looking towards a smaller number of pools with assets under management averaging £200 billion. 
  • Revised guidance will include a preferred model of pooling which is expected to be adopted over time based on “characteristics and outcomes” rather than prescribed structures. Inter-pool collaboration encouraged. 
  • Investment in other pools should only be done via a Fund’s existing pool.  
  • Greater transparency on reporting to be developed in conjunction with the Scheme Advisory Board (SAB). 


Levelling Up
 

  • Government keen to maintain a broad definition of levelling up but UK wide. 
  • Where scale for local investment is an issue funds may wish to continue to invest outside the pool. 
  • 5% investment in levelling up remains an ambition, but recognises it is not a separate asset class. 


Private Equity
 

  • On private equity (PE) the Government remains committed to unlocking capital to support growth businesses. However, “investment in the UK is particularly welcome but it is not proposed to restrict this ambition to investments in private equity in the UK”. 
  • 10% investment in PE remains an ambition and would not be mandated (need to still take into account fiduciary duty). 10% does relate to PE, but funds can also include other investments in private markets outside of this where appropriate on risk / return grounds. 
  • Pools to be encouraged to strengthen partnerships with British Business Bank (BBB) to support opportunities in venture capital and growth equity. 


CMA Objective Setting for Advisers
 

  • LGPS regulations will be amended to require objective setting for all advisers including consultants, pools and independent advisers when providing advice on investments, investment strategy statements, strategic asset allocation and manager selection.  


Governance and Other
 

  • Requirement to formally publish a training policy for Pension Committee Members and to report on training undertaken. 
  • LGPS definition of investments amendment to be made in regulations. 
  • Guidance to be issued to increase consistency of reporting on asset allocation in annual reports, working with the Scheme Advisory Board. 

Insights

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