What the LGPS expects from the Mansion House speech

Soon after taking up her role, Reeves stated her intention to address what she saw as “fragmentation and waste” within the LGPS, as well as increasing the system’s ability to invest at scale in line with other major global institutions such as Canada’s public sector pension funds.

Pensions Expert’s sister publication LAPF Investments surveyed members of the LGPS community to gauge expectations and potential reactions to these proposed reforms.

A one-fund approach

One proposal put forward by some commentators is to merge all 86 LGPS funds in England and Wales to create one single pool, which would have at least £360bn in assets.

However, when asked whether the chancellor might propose merging the LGPS into a single fund, only 15% of respondents saw this as a real possibility.

As one respondent said: “The LGPS is a success story. Why gamble with that? There is no guarantee that a single merged fund would make the same gains.”

Many more respondents expressed scepticism, with some feeling that current pooling structures could achieve similar outcomes without the upheaval of a full-scale merger.

As one respondent warned: “I do not think [the government] will look to the LGPS to merge into one fund, but if they do it will be very unpopular with the larger LGPS funds that have yet to pool their equity investments.”

Some respondents suggested that the government may instead push for mergers of funds or pools.

However, as one person pointed out, “even that would require a project of unprecedented scale” – and the subsequent impact on scheme members “needs to be properly considered”.

Mandating UK investments

Ever since the previous chancellor, Jeremy Hunt, floated the idea of forcing schemes to report on UK asset allocations to encourage more domestic investment, there has been speculation that this could become mandatory.

However, our respondents again indicated that they did not expect Reeves to pursue this route. Almost two thirds (64%) said they did not expect the chancellor to impose such a mandate, citing concerns over fiduciary duty.

Instead, respondents said they expected a “comply or explain” approach, stopping short of mandating specific allocations. As one person said: “It will likely be as close to mandated as possible without directly overruling fiduciary duty.”

Another respondent lamented: “The government seems to view the LGPS as a cash cow, but at the same time fails to realise that this money is for the future benefits of the members of the pension fund.”

Another predicted: “I expect there will be an attempt to mandate investment, but it will need primary legislation and will require a full review of the fiduciary duty requirements.

“I don’t agree that the proposals should be made, or that if they are made, they will be accepted by the LGPS community, but if the Labour government is to fulfil its mandate, the proposals will be made.”

The survey highlights a mix of anticipation and caution within the LGPS community. While there is openness to reform, there is also a clear desire that reform does not ignore the fundamental responsibilities of local authority pension funds.

LAPF Investments and Pensions Expert will publish post-speech analysis, capturing reactions and assessing the long-term implications of the chancellor’s vision for the LGPS.