LGPS ‘still overweight’ in equities despite record yearly reduction
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Local Government Pension Scheme investments in equities dropped by 3.2% in 2017/18 as overall assets rose by 5% compared to the previous year to £275bn, according to the Scheme Advisory Board (SAB) annual report.
This year’s report found that 54% of assets were invested in pooled investment schemes, 29% in public equities, 7% in bonds and 3% in direct property.
The report said that asset allocation had remained broadly stable over the past decade.
But it added: “The…equity exposure was reduced at the fastest rate yet seen in the latest year.
“However, the LGPS is still substantially overweight in equities when compared with the corporate sector where schemes have sought to ‘de-risk’ their assets, moving instead to bonds and cash flow matching investments.”
The report, released this week, collates information from the 89 individual funds in the LGPS and revealed that overall, the scheme made a 4.4% return on all investments, down from 19.1% in the previous year.
Average investment expenses were 0.4% over the period meaning the net return on investment was 4.0%.
The report said: “This return is below the 30 year average of 8.9% per annum but broadly in line with actuarial assumptions which are currently estimating around 4% a year.”
Bonds, equities and alternatives returned 1%, 4% and 6% respectively for the year, meaning that “strategic asset allocation therefore had less of an impact than usual”, the report said.
Property was the best performing of the major asset classes, producing a return of 10% for the year.
Total membership of the LGPS grew 3.4% to 5.8m members in 2018.
Administration costs fell by 7.3% over the previous year to £176,128.
Launching the report at the Pensions and Lifetime Savings Association local government conference this week, Roger Phillips, chair of the LGPS advisory board, said: “Given the real push on getting that data correct and getting quality data, all the other challenges we have I think we have a good story to tell on our administration costs.
“When everybody talks about the sexy side of local government pension schemes and investments never forget the unsung heroes of administration.
“If that had not been got right then how do you make proper investment decisions?”
As at the 31 March 2016, LGPS liabilities were estimated at £254bn indicating an overall funding level of 85%.
The report said: “During the intervening years, the board has been actively developing proposals to further tackle the estimated funding deficit of £37bn to improve the sustainability of the LGPS and its future funding levels.”
The next triennial valuation of the LGPS will be as at 31 March 2019.
Extinction Rebellion protesters this week derailed a speech by local government minister Rishi Sunak to demand he gives council pension funds greater powers to dis-invest from fossil fuel companies.
