Berkshire Pension Fund has defied government orders on pooling by planning to pool just a third of its assets initially and stating that it will only “take into account” pooling as an option for any new investments.
The Department for Communities & Local Government has instructed Local Government Pension Scheme funds to form eight collective investment vehicles, through which they should pool all of their investments “with minimal exceptions” where this would not provide good value for money.
But the Berkshire fund’s annual report, approved by the Windsor & Maidenhead RBC pension committee on 11 September, included plans to pool just 34% of its assets. It is the only fund not to have formally committed to joining a pool.
The report said the council had exchanged a letter of intent on pooling with the Local Pensions Partnership, the pool formed by Lancashire CC’s pension fund and the London Pension Fund Authority.
However, the report added that the council “is reviewing the quantum of assets to be pooled with LPP”.
The authority said it will only consider at present moving its liquid assets into the pool – its equities in developed, emerging and frontier markets – amounting to just over a third of its holdings. It said it would be “uneconomic to pool existing investments in private funds” such as private debt and equity, infrastructure or real estate. If the fund considers any more investments in these areas, the fund would “take into account” assets available in the pool, it said, indicating that it would not automatically invest via the pool.
In mid-August, local government minister Marcus Jones wrote to all LGPS fund chairs and lead officers expressing disappointment with the pace of their work on pooling, and demanding they prove to a greater extent that their plans will make significant savings.
This prompted anger and confusion from some LGPS officers. At the LGC Investment Summit in early September, Southwark LBC finance director Duncan Whitfield described the letters as being “at best, ill-informed and reckless at worst”.
Speaking on the same panel, Sean Nolan, director of local government at the Chartered Institute for Public Finance & Accountancy, said there was “a neoliberal agenda about competition” driving the pooling reforms even though he doubted pools could compete to attract funds, given funds are not meant to switch pools.
However, it has since emerged that Mr Jones wrote to Berkshire pension fund chair John Lenton (Con) earlier this year ordering the fund to commit to LPP.
In the letter, dated 15 March, Mr Jones wrote: “I have made it clear that I expect every administering authority in the LGPS to pool and place all assets in their chosen pool… I am therefore concerned to note that Berkshire is the only administering authority which has not formally committed to participation in a pool.”
Mr Jones added that Berkshire “joining another pool” aside from LPP was “no longer a realistic option” and ordered Berkshire to bring negotiations to a conclusion “with a spirit of compromise on both sides and a determination to arrive at an agreement satisfactory to all”.
Mr Jones also emphasised the aim of pooling to increase funds’ capacity to invest in infrastructure.
However, Cllr Lenton wrote back to Mr Jones to say that the committee was “looking for costs savings, not increases and [has] yet to see how such savings will be achieved”.
Cllr Lenton also took issue with Mr Jones’ infrastructure comments, arguing that the fund’s primary purpose was to pay benefits to pensioners.
“We would comment that size is not everything in infrastructure and would particularly highlight our recent announcement with Gresham House regarding the establishment of a fund (open to all LGPS and private sector funds) to invest in housing, infrastructure and innovation,” Cllr Lenton wrote.
The minutes of the Berkshire pension committee of 15 May reveal further concerns on pooling.
These included a report on a meeting between Berkshire and LPP. Cllr Lenton told members that LPP was “not comfortable with [Berkshire’s] investment strategy and the amount [it] wished to retain for local investments”.
Committee vice-chair David Hilton (Con) also said that Berkshire had £500m invested in equity, the income from which it used to pay out pensions, but that “LPP may refuse to maintain our investment strategy and they would cover pension payments from the capital bucket and by selling capital”.
Cllr Hilton also said although LPP did offer eight groups of investments to choose from, this would still force Berkshire to opt for “a vanilla, traditional fund”.
The committee was due to discuss pooling again at its 11 September meeting, but papers relating to this were restricted.
The Berkshire fund is administered by Windsor & Maidenhead RBC. When LGC asked the council for comment on the fund’s progress since May, a spokesman for Windsor & Maidenhead RBC said : “The Royal County of Berkshire Pension Fund anticipates that it will have pooling arrangements in place by the due date.”