LGPS faces foreign policy restrictions and intervention powers
0
Photo: Foreign and Commonwealth Office
A ban preventing local government pension schemes from establishing investment policy that conflicts with UK foreign policy will go ahead, despite calls from 20,000 members of the public to drop the veto.
In a response to its consultation on new LGPS regulations, the government said that it would press ahead with the measures understood to be primarily aimed at countering boycotts of Israeli products and services.
The consultation received 23,516 responses, with 98% from members of the public, primarily objecting to the ban.
A response from the Department for Communities and Local Government said: “… the government remains committed to the policy set out in November’s consultation paper that administering authorities should not pursue investment policies against foreign nations and UK defence industries, other than where formal legal sanctions, embargoes and restrictions have been put in place by the government.
“In making investment decisions, the government is clear that administering authorities must continue to act responsibly and to make investment decisions that secure long-term financial returns and are taken in the best interests of funding members’ benefits.”
Ryvka Barnard, senior campaigns officer on militarism and security at War on Want, which has played a major role in the “boycott and divestment” movement against Israel, criticised the foreign policy measures.
She claimed that local councils had played a “major part” in helping topple South Africa’s apartheid regime during the 1980s.
The new regulations will dispense with the current, explicit limits on specified types of investment and, instead, charge administering authorities with determining the appropriate mix of investments for their funds.
One section gives the government powers to step in and direct investment strategies if councils fail to follow guidance published alongside the regulations.
William Bourne, director of investment adviser Linchpin, told Room151: “It is understandable, in moving from a prescriptive to a prudential system, that the government should take these powers.”
But he said that there were worries that the wording of the regulations was so broad that they could cause problems under future governments and foreign policy decisions.
“We currently have limited economic sanctions against Russia but they could be extended to cover all Russian investment in future,” he said.
“All funds directly or indirectly have investments in Russian equities and they would have to sell immediately, whatever the price.”
Hugh Grover, chief executive at the London CIV LGPS pool, welcomed publication of the regulations but said he was “concerned about the power of intervention and how that might be used by secretary of states in the future and for what purposes”.
In its consultation response, the government also rejected claims that the new intervention powers were inconsistent with the idea of devolving decision making to local government.
It said: “Administering authorities will continue to be responsible for setting their policy on asset allocation, risk and diversity.
“However, given the very large sums of public money at stake, we believe that it is entirely appropriate for the secretary of state to be able to intervene where concerns have been raised, having taken account of all available evidence.”
A statement by pension adviser Hymans Robertson said: “Retention of the power of the secretary of state to intervene is unsurprising. However, it is disappointing that greater clarification around the manner and timeframes within which this power may be exercised have not been set out.”
The regulations also include a new requirement, not included in the original proposals, for the government to take into account a report by pension boards before intervening.
The regulations come into force on 1 November, but give administering authorities until 1 April 2017 to publish their first investment strategy statement in accordance with the new rules.
