Running pension funds in both the private and public sector is an increasingly complex business requiring ever more specialised support.
The Local Government Pension Scheme is certainly no exception to this and with collective assets of around £180bn and 4.7 million members it is one of the largest funded schemes in Europe.
One of the strengths of the LGPS is that whilst it is a national scheme, it is locally administered and accountable. The flipside of this is that for us to effectively work our combined assets and experience for the greatest benefit to our stakeholders, we have to collaborate. The LGPS has a strong tradition of doing just this but Lord Hutton highlighted that even greater opportunities should be exploited wherever possible.
The National LGPS Procurement Frameworks are a result of collaboration between a number of LGPS funds. A point of principle behind the initiative is that all resulting benefits and savings are retained within the LGPS.
The project provides and supports multi-user, multi-provider, OJEU-compliant procurement frameworks, open to all LGPS funds nationally, to help them procure services from a range of qualified providers.
The frameworks deliver benefits by allowing funds quicker and more efficient access to high-quality services. They remove the need for each LGPS fund to independently undertake a full OJEU procurement, enabling them to leverage better prices while crucially still supporting local decision-making and service requirements.
The project is in its relative infancy – pension management is a long term game and contractual relationships often reflect this – but with 27 contracts already awarded under the frameworks and a further 21 currently in progress, the initiative has already delivered significant savings across participating funds and has the potential to deliver many more millions.
The National LGPS Frameworks initiative is directly in line with the government’s agenda for delivering greater value for money, alongside the reformed LGPS. As part of the reform and efficiency programme within the LGPS, the DCLG recognised in its recent consultation that “there are clear advantages and savings to making use of the National LGPS Frameworks” and said “funds should give serious consideration to making greater use of these frameworks”.
It follows that the more support the National Frameworks receive, the greater influence they will have in the marketplace on fees and services.
In response to DCLG’s consultation, the National LGPS Frameworks project provided evidence of almost £8m savings to date and the potential for in excess of £125m more across the LGPS, just based on the current frameworks.
These frameworks have a lot more to offer as they mature and participation grows, but they’ve already proved the concept and are transforming the marketplace, potentially with implications wider than the LGPS. There is also value in exploring whether they may offer a lower risk alternative to collective investment vehicles in some circumstances.
The beauty of the frameworks is that any LGPS fund can use them to procure services matched to their own specific requirements. All participating funds benefit from the pre-agreed terms and conditions – often a cause of intense and expensive negotiation – as well as ceiling prices established under the framework, and a collaborative rebate shared between participating funds.
The framework procurement route also offers benefits to suppliers as well as funds, as it significantly reduces their costs.
As Lord Hutton envisaged, this is collaboration in action, already delivering significant savings and benefits for the LGPS today, with the potential for much more.
However, life is never that straightforward. As ever there are costs and risks that we must acknowledge and manage if we are to deliver the best outcomes.
Effective and sustained collaboration is not easy. Setting up and managing these frameworks requires significant and sustained dedication from funds and professionals.
Frameworks are a proven method of achieving savings across the public sector. When well developed and managed they are low risk. Improvements and efficiencies can be achieved without wholesale reform, with much reduced risks and overheads and without diluting local accountability. However, an unregulated free-for-all environment potentially increases the risk and cost of failure and dilutes the opportunities for maximising benefits.
So to bear the greatest fruit initiatives like the National LGPS Frameworks need proper co-ordination, support, testing and evaluation before wider rollout to ensure quality, consistency and effectiveness.
Challenging though this sometimes may be, local and central government, as guardians of the LGPS for future generations, must continue to meet the reform opportunities initially set out by Lord Hutton to carefully find ways of collaborating that mean we deliver the best outcomes for both current and future stakeholders.
More about the National LGPS Frameworks
National LGPS Frameworks are currently in place for:
- Actuarial and benefit consultancy services
- Investment consultancy services
- Global custody services
A specialist legal services framework is anticipated to be live towards the end of 2014. The potential for expanding the project into other areas is currently actively being explored.
More information about the frameworks - including the benefits, how they work, their scope and who can use them - can be found at www.nationallgpsframeworks.org, or alternatively by contacting the team supporting them at firstname.lastname@example.org or by calling 01603 495922.
Nicola Mark is head of the Norfolk Pension Fund and Chair of the National LGPS Frameworks collaboration