LGC’s commentary on pension pooling and sovereignty
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Last week, the Berkshire pension fund, administered by Windsor & Maidenhead RBC, became the final Local Government Pension Scheme fund to formally join an investment pool.
Berks had held out for longer than any other fund in complying with the government’s instruction to join a pool but has now signed up to the Local Pensions Partnership, alongside the Lancashire CC fund and the London Pension Fund Authority. Although in its February 2016 pooling proposal the LPP mentioned Berkshire’s intention to join, the south east fund didn’t actually seal the deal with a memorandum of understanding until a whole 21 months later. Even now, Berkshire’s membership is subject to a full business case for joining the pool being approved by the fund’s committee.
These first formal steps followed a tense exchange of letters between local government minister Marcus Jones and John Lenton (Con), chair of the committee, in spring this year. Cllr Lenton claimed he had seen no evidence at that stage that pooling would save money. Mr Jones ordered the Berkshire fund to join the pool anyway, as finding another pool at that late stage was “no longer a viable option”.
Investment choice and local sovereignty were at the heart of the Berkshire fund councillors’ complaints. The minutes of a 15 May committee meeting revealed concerns from councillors that joining the LPP would force the fund to adopt “a vanilla, traditional approach” and prevent it from retaining its ideal amount for local investments.
Neither Berkshire nor the LPP have yet been able to confirm how, if at all, these concerns have been addressed.
Berkshire’s complaint, though, is far from uncommon. Though it is likely pooling will reduce investment costs in the long run, it will restrict investment choice for individual funds from the entire market to just the products selected by the pool.
Further clashes between councillors, officers and pools are likely to arise as pools bring investment products onto their platforms, not least because there are disparities in the degree of control pools give funds over investments.
Take, for instance, the London Collective Investment Vehicle. As LGC revealed in an interview with the pool’s chair Lord Kerslake, the CIV hires external asset managers for each product member funds say they need. Rationalisation of similar products will occur over time, Lord Kerslake said, but for the time being, the CIV will offer some choice where it can.
This is in sharp contrast to the Brunel Pension Partnership. In an interview with LGC, pool chair Denise Le Gal – herself a former chair of Surrey pension fund – explained Brunel will create around 20 mixes of assets, and member funds will be invested into the one that is the best fit for their strategy.
Pooling is not the only instance where the government has ordered local authorities gather into groups – with little instruction as to how those groups should be formed – and hand some sovereignty up to a new mezzanine level of power. Just look at the many fallings-out among elected members over potential devolution deals in recent years.
The difference, though, is that councils may take or leave devolution and the prizes it might win them. In pooling, councillors have been ordered, not invited, to act, and to many of them, the reward is far less clear. Councillors may have accepted pooling as they have no other choice – but LGC anticipates wrangling over the detail, and backlash from individual councils if pools are seen to underperform.
Rachel Dalton, features editor