Home ListingJuly 8, 2015

Forced Collaboration for UK Pensions

Government shelves forced passive plans, but new rules could instead push public pensions into investment collaborations.

Reported by Featured Author

The UK government plans to force public sector pensions to pool their investments and reduce costs, according to today’s Budget report.

In the 123-page document accompanying Chancellor George Osborne’s speech, the country’s local government pension schemes (LGPS) were told that those funds that did not present “sufficiently ambitious” proposals could be forced into pooled arrangements.

“The government will work with LGPS administering authorities to ensure that they pool investments to significantly reduce costs, while maintaining overall investment performance,” the Budget report stated.

The document also referred to “common criteria” for achieving savings, which will be detailed in a consultation later this year. This will also introduce the legislation for forcing pensions to pool resources.

From the UK Budget 2015 Source: HM TreasuryIn 2013, a Hymans Robertson paper—commissioned by the government—proposed a LGPS-wide move to passive investments. However, the Budget’s statements are understood to be the government’s preferred way forward following a consultation with pension funds that completed last year.

Joanne Segars, chief executive of the National Association of Pension Funds (NAPF), said pensions would be better off working together on their own initiatives.

“The NAPF and its LGPS member funds will engage constructively with the government on this initiative,” she said. “But it’s clear that pooled investments will work most effectively where they arise out of natural collaboration between funds rather than where funds are forced to invest together.”

Last week, the first major collaboration between two UK public pensions was given the green light as the boards of the London Pension Fund Authority and the Lancashire County Pension Fund agreed to the creation of a £10 billion investment partnership.

London Councils’ Hugh Grover is currently overseeing the creation of pooled investment vehicles for London’s 32 public sector pensions, and a similar plan has been discussed among public funds in Wales.