Ministers have acted to boost Local Government Pension Scheme investments in infrastructure as the government continues to focus its efforts on economic growth.
The Department for Communities & Local Government has launched a consultation on a rule change which would allow local authority pension funds to invest more of their assets in key capital projects.
Communities secretary Eric Pickles said the relaxing of restrictions on pension funds could release £22bn into the economy.
“Unlocking Town Hall pension pots so they can be used to invest in vital infrastructure projects is a common sense decision that will help this country complete on a global scale and get Britain building,” he said. “This is potentially a huge development and investment opportunity we simply cannot afford to ignore that also allows us to maintain long-term value for money for the taxpayer.”
Under the proposals set out by the government, LGPS funds would be able to invest up to 30% of their investments in partnerships such as infrastructure investment vehicles, a doubling of the current 15% limit.
An alternative proposal which people have been asked to comment on is the creation of a new investment class relating specifically to infrastructure and which the government has suggested should also be subject to a 15% investment limit.
The proposal has been welcomed by the Royal Institute of British Architects, whose recent Future Homes Commission report called for LGPS investment in housing, and the Confederation of British Industry.
The consultation has also been welcomed by Joanne Segars, chief executive of the National Association of Pension Funds, who said LGPS regulations out of line with the government’s focus on economic growth.
“On the one hand, the government says that pension funds should invest more in these projects, but on the other there are rules preventing this,” she said. “These regulations are no longer fit for purpose and need urgent reform.”
But she said the change to the 15% investment limit “would remove one barrier, but there are wider issues that need to be addressed. The government needs to undertake a comprehensive review of the local authority pension fund investment regulations to ensure that funds can act in the best interests of their members and council tax payers.”
Graham Robinson, infrastructure specialist at international law firm, Pinsent Masons voiced similar concerns about the effectiveness of the proposals.
“Pension funds have so far shunned the opportunity to invest in construction of new infrastructure projects, preferring less risky and more stable operational infrastructure assets. Raising the threshold from 15% to 30% in itself does little to address that.
“Despite the fact that pension funds are desperately searching for better returns from alternative assets, the government’s case for infrastructure investment is still not compelling enough. New models are beginning to emerge and the carrot of government guarantees for infrastructure investment being dangled, but the pace of change remains a problem for the coalition.”
There have been also criticism of the proposal from union negotiators who have been working closely with the government on reform of the LGPS have criticised the move. GMB national secretary for public services Brian Strutton said he was “dismayed” about “plans for politicians to raid council pensions to fund infrastructure projects the banks won’t touch”.
The LGA welcomed the proposals but emphasised that pension funds have to make investment decisions that were “prudent, transparent and not open to political interference”. A spokesman said: “Managers have a legal responsibility to try and maximise returns for pension holders, so an increased limit or new investment class doesn’t automatically mean more investment in infrastructure will follow. Councils and their partners in private industry and central government have to make sure that infrastructure projects represent a good investment with competitive returns.”