LGPS assets drop 5% in 2020 as contribution income rises

Total membership rose to 6.16m in 2020 from 5.89m in 2019, a rise of 4.2 per cent, including increases in each category of scheme membership. 

The number of active members rose by 3.1 per cent, deferred pensioners by 4 per cent, and pensioner members by 5.7 per cent, this last more than double the increase between 2018 and 2019 (2.5 per cent).

We are different to the other public sector schemes. Therefore we need to be treated differently, and therefore some of the solutions for McCloud may need to be a bit more specific and tailor-made for our scheme, rather than what’s going to be done for others

Roger Phillips, LGPS Advisory Board

The report showed the scheme retaining a positive cash flow position in 2020, with contribution income increasing by £0.68m, £0.88m lower than benefit outgoings and consistent with contribution schedules and payments made in previous years.

The number of employers in the LGPS was up by almost 1,000, rising to 16,307 in 2020 from 15,579 in the previous year.

Last year did, however, produce significantly poorer investment returns than 2019, which the report attributed to market instability.

Total assets decreased by 4.9 per cent to £276bn, and net investment return on these assets (after fees) was down 4.8 per cent, compared with 2019’s increase of 6.2 per cent.

The £276bn drop encompassed a £12bn decrease in the value of segregated private equities and a £1bn fall in the value of property investments, though private equity was up by £1bn.

Around two thirds (68 per cent) of LGPS assets were invested in pooled investment vehicles, while private public equities accounted for 14 per cent and bonds for 6 per cent. Direct property made up 3 per cent, and other asset classes 9 per cent.

The funding level for the accounting year ending March 31 2021 was 85 per cent.

Lack of benchmarks complicates responsible investing

In a wide-ranging discussion at the Pensions and Lifetime Savings Association’s Local Authority Conference, LGPS Advisory Board chair Roger Phillips said that with the disruption caused by the Covid-19 pandemic, this is perhaps not a year in which to read too much into the annual report.

However, asked how the report might develop in future years, he mentioned his desire to see more information about responsible investing included, but cited a number of barriers to introducing it in practice.

“There is a difficulty as to how you can actually record that right across the scheme,” he said.

“I think we do need to have something that we can say to the world about what we’re doing as a scheme and as funds about responsible investment, but of course the key there is to ensure that we have that sort of symmetry right across everything. Is it apples or pears?

“We are all struggling to establish benchmarks to establish how we monitor our responsible investments, but certainly it’s something that we do need because of course it’s very important.”

Employers not out of the woods

Jeff Houston, head of pensions at the Local Government Association, said the LGPS had been fortunate so far in not seeing many of its employers go under as a result of the pandemic, but cautioned that there is still plenty of time for things to go wrong.

He said there are certain sectors and employers about which there is still great concern, and cited leisure centres as an example of employers facing a long and uncertain road to recovery.

“There are discussions to be had in the education sector,” he continued. 

“We’ve got colleges and universities whose very status and fundamental financing has changed massively over the past few years, and there’s a question to be asked — is the LGPS still the right scheme for that?”

Houston said the rise of academy schools likewise gives rise to questions about whether the LGPS is the right kind of scheme “to have a multi-employer base”, and added that engagement with academies has been difficult thus far because there is no representative body that can speak for them, despite them being “such an enormous sector”.

“There is a vast range of opinions within universities and colleges, from ‘we really like the LGPS and we’d like to stay’, to ‘I would get out tomorrow if I could’,” he said. 

“That needs to be talked about. We’re currently engaging with [the Department for Education]; they’ve had a bit of a pause on a lot of this, but we’ve started conversations with them about all of these issues.”

Yes, minister

On the subject of the McCloud remedy, Phillips was bullish about negotiations with the Ministry for Housing, Communities and Local Government, specifically in ensuring that the LGPS is treated differently with respect to the implementation of the McCloud remedy.

“[The minister] has got a scheme that he oversees that is operating well, that has good governance, good administration, that has good investment policies and is thinking about responsible investment — its thinking about how it can move and modernise,” he said.

“There will be people whispering in his ear who may want to try and tell him something different, but that’s the matter.”

Phillips continued: “We are different to the other public sector schemes. Therefore we need to be treated differently, and therefore some of the solutions for McCloud may need to be a bit more specific and tailor-made for our scheme, rather than what’s going to be done for others.”

Exit payment cap reintroduced in time for Christmas

Houston added that he expected the exit payment cap, the subject of a government U-turn earlier this year, to be reintroduced “before Christmas”.

“I would expect to see something, probably a consultation, but something from the Treasury. That is going to indicate that we’re going to see the exit cap in some form or another,” he said.