The prevailing narrative on fee levels does the LGPS a disservice, writes the head of Wiltshire Pension Fund.
Jennifer Devine will speak at the LGC Investment & Pensions Summit in Birmingham on 11-13 September. View the programme here and book your place here.
In the realm of pensions, few topics are currently sparking as much debate and uncertainty as pensions reform, and as head of Wiltshire Pension Fund, I feel this is particularly true regarding the future of the Local Government Pension Scheme.
Jennifer Devine, head of Wiltshire Pension Fund
Despite the potential significance of reform, the voice of the LGPS seems to be largely unheard, leaving a lot of misconceptions hanging in the air. Change with the long term in mind can drive positive results, helping us to focus on what we do best: serving the employers and members of the scheme.
I want to address some of the most commonly seen myths surrounding pensions reform and the LGPS, shining a light on the reality of what the LGPS is all about.
Myth one: The LGPS doesn’t invest in the UK, and this is a disgrace!
The new government wants pension funds to invest in the UK, but this mustn’t come with the cost of unintended consequences to our scheme employers and members.
The locally run LGPS is already well aligned with the government’s agenda to invest in the UK
Mandating where the LGPS invests means removing accountability from local authorities, while leaving them carrying the risks of investment underperformance. The locally run LGPS is already well aligned with the government’s agenda to invest in the UK, and if the government can help create more attractive UK investment opportunities, the money will undoubtedly follow.
At Wiltshire, we have already deployed significant capital into the UK, such as through our 5% allocation to UK affordable housing, or our £100m commitment to renewable infrastructure in the South West (as part of a collaboration with other LGPS funds totalling £330m).
These investments are a compelling part of our strategy, delivering positive UK impact alongside competitive market returns, and other innovative LGPS funds are also investing in a similar way.
Myth two: Fee savings are top priority, and the LGPS needs to amend its inefficient ways
The fee savings from pooling that the LGPS funds report to the government are submitted using an out-dated template and generate results that are not reflective of reality.
We commissioned an independent review which found that reported fee savings are over-inflated. But for Wiltshire, it isn’t just about fee savings anymore, and we have embraced pooling due to the other benefits from doing so.
Our committee is now focused on net performance and value for money. Reports that fees in the LGPS have gone up are an incomplete picture and should not be taken out of context: more investment into private markets means higher fees, and better disclosures have also flushed more costs out into the open.
The prevailing narrative does a disservice to the LGPS, which has in fact delivered investment outperformance over the long term, helping to keep contribution rates stable and affordable for the cash-strapped public entities who are our employer base.
Myth three: Increased scale is essential to achieving a diversified investment strategy
Many LGPS funds have been investing in private markets, infrastructure and impact investments for a long time, pre-dating pooling. In fact, Wiltshire recently made an allocation to a climate tech venture capital fund as part of our locally managed climate opportunities portfolio.
It is absolutely vital that LGPS funds can continue to hold pools to account effectively
Other LGPS funds are delivering local impact portfolios, and doing this locally enables them to move quickly to access opportunities and keep a closer eye on the impact of their investments.
There are benefits of scale, such as through the current pooling arrangements, but there is limited evidence to indicate that going further would deliver better outcomes or greater fee savings. There has also been talk about moving strategic investment decisions over to the pools, but I believe this would represent an insurmountable conflict of interest.
Pools are in place to deliver effective investment portfolios which meet the needs of the partner funds; it is our job to hold them to account for performance to deliver the best returns for employers and members.
It is absolutely vital that LGPS funds can continue to hold pools to account effectively and retain accountability to their scheme employers and members.
We would welcome the opportunity for active involvement in any review of the LGPS, bringing together leaders working in the LGPS to discuss collaborative strategies for improvement, and how we can raise standards to achieve our collective goals.
We need to focus on setting higher levels of best practice and reporting, maintaining local accountability, and ensuring the scheme continues to deliver value for money. The LGPS, managed by officers with a strong public sector ethos, has a proven track record of success that should not be overlooked.
I am confident we can rise to the challenge and work together with the government to deliver positive outcomes for all, and a sustainable and secure financial future for the scheme.
Jennifer Devine, head of Wiltshire Pension Fund
Jennifer Devine will speak at the LGC Investment & Pensions Summit in Birmingham on 11-13 September. View the programme here and book your place here.