Plans for LGPS London fund to go ahead while government explores merger

Council leaders in London have decided to press ahead with plans for a collective investment vehicle (CIV) to jointly manage their pension pots, despite a government consultation which could scupper the initiative.
At a meeting on Tuesday, a group of council leaders from across the capital voted to continue preparations for the vehicle, including taking steps to engage a project manager and legal and financial advisers.

The decision was taken even though local government minister Brandon Lewis has appointed consultant Hymans Robertson to examine a range of options for reforming the Local Government Pension Scheme, which could include the London funds.

A report to the meeting said: “The interest being shown by the minister presents a risk that government decisions/actions will impact on any decisions taken by leaders’ committee to pursue a CIV in London.”
One of the three options being considered by the consultation is to create a CIV covering the whole of England and Wales, which would mean that the London CIV would be redundant.

Speaking to Room 151, Chris Bilsland, finance director of the City of London Corporation, said: “The size of the London proposals – a pot of around £30 billion – fits well with the other options, which would see the creation a number of collaborative funds.
“But if the minister decides to go with a pooled approach across the whole of England and Wales, our preparatory work could help feed into the creation of any new vehicle.”

However, Hackney mayor Jules Pipe, chairman of London Councils, has written to Lewis to ask for an indication of his views of the London proposals, and whether spending an estimated £500,000 on set up costs would be a waste of cash.
In his letter, he said: “Whilst, of course, you will still have formal decisions to make on the matters you are consulting on, some indication of the reasonableness of the steps we are taking to improve the efficiency and performance of pensions in London would provide us with some additional assurance at this point.”

The proposals agreed by the London leaders would see a vehicle which would allow borough pension committees to continue to decide on the balance of asset types across their portfolio, while the CIV would engage fund managers to manage the investments collectively.

So far 20 funds in the capital have said they are keen to participate and are prepared to contribute between £25,000 and £50,000 to set-up costs. Another six are keen to participate but have not agreed whether to contribute to set-up costs, while six funds are undecided about joining, along with one that has said it does not want to take part.

The model for the London CIV would most likely be an Authorised Contractual Scheme, which would have preferable tax treatment by the Treasury, and is seen as being attractive to fund managers, insurance companies and pension funds that might otherwise look abroad to invest.
Leaders heard that, with close to full participation, annual savings for the capital’s LGPS funds would be in the region of £120 million per year, with annual running costs of around £4.8 million a year.