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Two of the eight vehicles that manage pension assets for town halls in England and Wales have been told they must merge, marking the biggest overhaul of Local Government Pension Scheme “pools” for a decade.
ACCESS and Brunel, which manage close to £90bn between them, said they had received letters from pensions minister Torsten Bell and minister for local government Jim McMahon, saying their business plan “does not meet the government’s vision for the future of LGPS”.
The two pools, which span the south-east and south-west of England respectively, have been told they must notify ministers of their plan to merge with by the end of September.
The move is part of Labour’s plans to boost economic growth by consolidating pension assets but has sparked outrage by some people in charge of running the pools, who say the process has been rushed and warn against the costs associated.
A person close to ACCESS said it was “hard not to conclude that Treasury are simply steamrollering through with these plans regardless of the cost and disruption it will cause”.
“Ministers barely gave the pools 30 minutes to discuss and explore their proposals and it now looks like the ‘consultation’ was, as feared, simply a step on the road to a pre-determined outcome,” the person added.
The LGPS consolidation process started in 2015 when former chancellor George Osborne announced plans to pool LGPS assets, initially aiming for up to six “British wealth funds”.
Last November, the government announced it would create a series of “megafunds” across the £392bn LGPS by forcing town halls to move all of their assets into the pools but fell short of instructing them to merge.
Instead, the pools — which manage pension assets on behalf of 6.7mn people who work or worked mainly in the public sector — were asked to submit business plans to ministers by March 1 on how they would meet government’s requirements.
Pools were required to be investment management companies authorised and regulated by the Financial Conduct Authority, with expertise and capacity to implement and advise on investment strategies.
Ministers asked pools to lay out why setting up these structures would be less costly than merging with another vehicle
ACCESS is set up as a joint committee of their underlying funds. It estimated that merging with another pool would cost at least £100mn, about double the cost of building its own vehicle.
In the letter to ACCESS seen by the FT, ministers said it was “highly likely not to be the case that up to 100 per cent of ACCESS’s existing portfolio . . . would be subject to transition costs”.
Brunel is not regulated as an alternative investment fund manager but instead is FCA-registered under rules regulating markets in financial instruments, which means it is not set up to do internal investment management.
A person close to Brunel said they were “slightly disappointed by how the government has gone about it” because forcing the scheme to choose by September without doing a full business case is “not a lot of time”.
The Department for Work and Pensions said: “By 2040 the Local Government Pension Scheme is projected to reach £1tn in size — we must ensure the scheme is fit for the future.
“We have a duty to ensure every penny of members’ hard-earned money is well invested, and that the full scope of benefits of the LGPS’s extraordinary scale are being harnessed and maximised,” it added.
Data visualisation by Toby Nangle
