• Home
  • Admin/Tech
  • Benefits
  • Buzz
  • DB
  • DC
  • Diversity
  • Investment
  • Law & regulation
  • Risk reduction
  • Events
  • Whitepapers
  • Spotlights
  • Digital Edition
  • PPTV
  • Newsletters
  • Sign in
  •  
      • Newsletters
      • Account details
      • Contact support
      • Sign out
     
    •  

      You are currently accessing ProfessionalPensions via your Enterprise account.

      If you already have an account please use the link below to sign in.

      If you have any problems with your access or would like to request an individual access account please contact our customer service team.

      Phone: +44 (0) 1858 438800

      Email: [email protected]

      • Sign in
  • Follow us
    • Twitter
    • LinkedIn
    • Newsletters
    • YouTube
  • Register
  • Subscribe
  • Events
    • Upcoming events
      event logo
      Investment Conference

      This two part Investment Conference will bring you the latest updates from economists, asset managers and pension consultants. We will be taking a look at the outlook for the 2021 economy, alternatives, cashflow strategies and global equity markets to name a few, assessing how they fared through the volatility and what we can expect for the year ahead.

      • Date: 20 Jan 2021
      • Digital Conference
      event logo
      Webinar: Using passion for ESG to unleash member engagement

      This webinar will look at how pension schemes can harness their members’ interest in ESG to engage them more broadly with their pensions. In particular, it will look at exclusive research showing how members are reacting to ESG; their propensity to act versus their actual behaviour; and the expectations they have of providers in this regard.

      • Date: 26 Jan 2021
      • Webinar
      event logo
      Webinar: What to put on your GMP Equalisation project roadmap for 2021

      This webinar will bring together views from actuaries, lawyers, administrators, trustees and data experts to look at the pragmatic, collaborative solutions that are open to schemes to solve the GMP equalisation challenges in 2021. It will assess the individual challenges schemes face with equalisations and provide some practical options that are available to resolve these issues.

      • Date: 02 Feb 2021
      • Webinar
      event logo
      Webinar: Will the world return to normal in 2021?

      In this webinar, PP editor Jonathan Stapleton will be joined by BMO’s chief economist Steven Bell and director of fiduciary management, Christy Jesudasan, alongside PTL trustee director Melanie Cusack and Isio’s head of fiduciary management oversight Paula Champion to discuss the significant impact of these themes on the pensions sector.

      • Date: 04 Feb 2021
      • Webinar
      View all events
      Follow our Professional Pension Events

      Sign up to receive email alerts about our events

      Sign up

  • Whitepapers
    • How DC schemes can gain exposure to different asset classes in a low-return environment

      So far, DC plans have largely been focused on the onset of auto-enrolment and changes to the regulatory framework - be it the ‘charge cap,' ‘pension freedoms' or consultations around ‘value for money', says Annabel Tonry, Executive Director at J.P. Morgan Asset Management (JPMAM).

      Download
      Pension freedoms three years on

      In 2015 George Osborne, then the UK Chancellor of the Exchequer, decided that those age over 55 could take much more of their pension in cash. This has since opened up a range of possibilities for DC scheme members in the world of pensions.

      Download
      Find whitepapers
      Search by title or subject area
      View all whitepapers
  • Spotlights
  • Digital Edition
Professional Pensions
Professional Pensions
  • Home
  • Admin/Tech
  • Benefits
  • Buzz
  • DB
  • DC
  • Diversity
  • Investment
  • Law & regulation
  • Risk reduction
 
    • Newsletters
    • Account details
    • Contact support
    • Sign out
 
  •  

    You are currently accessing ProfessionalPensions via your Enterprise account.

    If you already have an account please use the link below to sign in.

    If you have any problems with your access or would like to request an individual access account please contact our customer service team.

    Phone: +44 (0) 1858 438800

    Email: [email protected]

    • Sign in
  • Industry

LGPS consultation: The industry responds

  • Natasha Browne
  • 24 July 2014
  • Tweet  
  • Facebook  
  • LinkedIn  
  • Send to  
0 Comments

Natasha Browne examines the industry's response to the government's consultation on LGPS funds

Funds of the Local Government Pension Scheme (LGPS) may be compelled to use passive management under proposals from the Department for Communities and Local Government (DCLG).

In its consultation- Local Government Pension Scheme: Opportunities for collaboration, cost savings and efficiencies - DCLG estimated the move to passive fund management of all listed assets would save £420m per year.

Related articles

  • Woodford investors to receive third payment on 26 August as annual reports delayed again
  • How multi-national companies are providing pensions for mobile workforces
  • Mineworkers and British Coal schemes succeed in a rare US securities fraud class action case
  • Have investment managers improved their ESG approaches?

It would be accessed through common investment vehicles (CIVs) and is predicted to cut investment fees by £230m and transaction costs by £190m. The switch away from funds of funds in favour of CIVs would produce additional savings of £240m.

The government wants to avoid hurting investment returns, and said the move could be achieved by using a ‘comply or explain' approach, or by requiring funds to invest a specified proportion of their listed assets passively. Alternatively, funds could be expected to merely consider the advantages of this approach.

Aon Hewitt principal Dave Lyons thinks ‘comply or explain' is as far as the government should go in making passive investment mandatory for the LGPS' 89 funds.

He says: "The LGPS is about £180bn of assets and illicit assets are probably about 90% across equities and bonds. Clearly, moving that proportion of assets out of active management into passive management would be a huge undertaking. It would be a phenomenal decision if the government were to conclude that would be the best way forward.

"If we can improve the average by lifting the lower performing funds up to better performance then that's a better outcome for the LGPS than forcing everybody down to the passive average. If you look at the fee savings that were identified in the report to DCLG they're really a drop in the ocean when it comes to improving or repairing the deficit that exists within LGPS."

Figures from the National Association of Pension Funds (NAPF) suggest the LGPS deficit is £47bn. Lyons believes active management and outperformance of assets would have a quicker and greater impact on this than the fee savings achieved by shifting all funds into a passive approach.

JLT Employee Benefits director John Finch backs the suggestion that LGPS funds could manage their own active allocation. He says: "The 89 English and Welsh schemes are not, in all regards, the same in terms of their liabilities profiles. You need to take that down to a more local level because it is the local elected members who have a responsibility to the electorate to manage those affairs. If you put it into one amorphous mass then you lose accountability. We don't see the value in that proposition."

He also warns of losses driven by a switch from active to passive. He says: "We don't think the big wholesale move to passive will achieve best value for members; it might make it low cost but the loss of performance doesn't make it best value.

"We also think that there is a lot more collaborative work going on between authorities to reduce costs. We've seen that in the work that the southwest has done with its framework agreement, and the national framework agreement that's coming in."

Alternative solutions

Axa IM local authority business development manager Tracey Milner (pictured) argues the government should concentrate on trying to replicate the behaviours of funds with successful active management, rather than forcing all funds down the passive route. She says: "In our view a ‘comply or explain' policy implies that any solution that is different from the default passive management and CIVs is an exception. A fund that is making investment decisions based on their own individual needs and objectives should not be treated as an exception.

"Low cost is not always the best cost. Costs should not be assessed in isolation from the value that is being delivered. If anything, a ‘comply or explain' policy should focus on the objective of achieving value for money and not a prescribed solution for how the value should be achieved. Value for money can be measured in numerous ways, but will likely consider long-term returns net of fees and risk management."

Blackrock head of UK local authorities Chris Head favours a combination of active and passive management, alongside exposure to alternative assets, for funds to meet their targets. He says: "We therefore believe that de facto mandating a move to passive strategies for all funds simply on the basis of cost would not be in the members' interests and would be counterproductive in the long term.

"We suggest substitutes to managing the cost of active and alternative strategies without reducing investment choice. We believe this can be achieved in a simpler manner than establishing national common investment vehicles (CIVs) where no current governance structures exist to support such structures. We are, however, supportive of regional efforts to back the creation of CIVs with an appropriate governance structure where investment aims have been agreed."

London Pension Funds Authority deputy chairman Sir Merrick Cockell agrees with the move for reform but was against prescribing "a narrow solution". He supports an Asset and Liability Management (ALM) Partnership model to reduce costs, and thinks this would give direct access to infrastructure and housing to better match liabilities. He says: "This would increase the chance of maintaining stable contributions and eliminate deficits over time. Our model can happen within existing legislation and we are already working with like-minded funds to develop a partnership."

The LGPS is one of the largest funded pension schemes in Europe with assets of £178bn. It has a total of 4.68 million active, deferred and pensioner members.

  • Tweet  
  • Facebook  
  • LinkedIn  
  • Send to  
  • Topics
  • Industry
  • LGPS
  • NAPF
  • DCLG
  • JLT Employee Benefits
  • Aon Hewitt
  • AXA IM
  • BlackRock
  • LPFA

More on Industry

The projects include a virtual conference in the spring
PMI and NextGen to collaborate on series of projects to represent the next generation in pensions

The Pensions Management Institute (PMI) and NextGen have partnered to offer a series of initiatives to “give a voice to the next generation of pension professionals”.

  • Industry
  • 14 January 2021
13 LGPS funds seek shared actuarial, admin and governance provider; Maps looks for independent evaluator

Norfolk County Council has issued a tender notice for a multi-provide framework agreement for the provision of actuarial services, governance, and administration support and consultancy services.

  • Industry
  • 13 January 2021
Have your say: What do you think will be the most important pension issues in 2021?

In this latest Pensions Buzz we want to know what will be the biggest pension issues in 2021.

  • Industry
  • 13 January 2021
Opperman said the powers will only apply to schemes where the act occurs after the powers come into force
Opperman: New TPR powers will not be backdated

New Pension Schemes Bill powers given to The Pensions Regulator (TPR) to issue contribution notices will not be backdated, pensions and financial inclusion minister Guy Opperman has confirmed in a written parliamentary statement.

  • Industry
  • 12 January 2021
Trustees could set out their resolutions in a formal statement. Image by USA-Reiseblogger from Pixabay
New year, new you? - New Year's (pensions) resolutions

Jake Churchill and Grant Suckling set out their five aims for pensions in 2021.

  • Industry
  • 12 January 2021
blog comments powered by Disqus
Back to Top

Most read

Opperman: New TPR powers will not be backdated
Opperman: New TPR powers will not be backdated
DWP sets de-minimis for flat-fee AE charges and launches work to standardise cost reporting
DWP sets de-minimis for flat-fee AE charges and launches work to standardise cost reporting
Barclays Bank UK Retirement Fund integrates ESG and climate risk into £1.3bn DGF
Barclays Bank UK Retirement Fund integrates ESG and climate risk into £1.3bn DGF
TPR response to funding code consultation reveals level of industry concern over twin-track regime
TPR response to funding code consultation reveals level of industry concern over twin-track regime
LGPS to become negative cashflow 'by 2024'
LGPS to become negative cashflow 'by 2024'
Trustpilot

 

  • Contact Us
  • Marketing solutions
  • About Incisive Media
  • Terms and conditions
  • Policies
  • Careers
  • Twitter
  • LinkedIn
  • Newsletters
  • YouTube

© Incisive Business Media (IP) Limited, Published by Incisive Business Media Limited, New London House, 172 Drury Lane, London WC2B 5QR, registered in England and Wales with company registration numbers 09177174 & 09178013

Digital publisher of the year
Digital publisher of the year 2010, 2013, 2016 & 2017
Loading