BudgetMar 16 2023

Budget 2023: LGPS must move faster on asset consolidation

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Budget 2023: LGPS must move faster on asset consolidation

The government is challenging Local Government Pension Scheme funds in England and Wales to move further and faster on consolidating assets, chancellor Jeremy Hunt announced yesterday  (March 15) in the Spring Budget.

A forthcoming consultation will propose LGPS funds transfer all listed assets into their pools by March 2025, and set direction for the future. 

This may include moving towards a smaller number of pools in excess of £50bn to optimise "benefits of scale". 

The government will also consult on requiring LGPS funds to consider investment opportunities in illiquid assets such as venture and growth capital, to “unlock some of the £364bn of LGPS assets into long-term productive assets”.

Last March, Thérèse Coffey, the then secretary of state for work and pensions said the government would introduce legislation to help pension schemes invest in illiquid assets.

Prior to that, the government had set out plans for LGPS funds to outline how they could invest up to 5 per cent of their assets in domestic initiatives, attracting criticism from some schemes.

The Local Government Pension Scheme is a public service pension scheme. 

It is a defined benefit (DB) scheme which means it provides benefits based on salary and length of service. 

Unlike the other main public service pension schemes which operate on a pay-as-you-go basis - meaning that contributions are paid to the sponsoring government department which meets the costs of pensions in payment - it is ‘funded’ - which means that contributions are paid to a fund which is invested and from which benefits are paid at retirement.

The largest DB scheme in England and Wales is the LGPS E&W, which is made up of 88 LGPD funds with 6.2mn members and assets of £276bn at the end of March 2020.  

LGPS Scotland is made up of 11 funds. At the end of March 2020, it had 606,312 members, and £46bn.

While pooling has delivered substantial benefits so far, the chancellor said progress needed to accelerate to deliver, adding that the government “stood ready” to take further action if needed.