What is investment pooling?

In the 2015 Summer Budget it was announced that the UK government would work with Local Government Pension Scheme (LGPS) administering authorities to reform how LGPS investments are managed.
The LGPS is one of the largest public sector pension schemes in the UK. It is a nationwide pension scheme for people working in local government or working for other types of employer participating in the Scheme. In England and Wales the LGPS is currently organised into ninety funds, each with an administering authority responsible for the management of its assets and liabilities and the administration and payment of pensions to its local members.
The government's plan was for LGPS funds to pool their assets into approximately six investment pools, in an effort to drive down investment costs and enable funds to develop the capacity and capability to become world leaders in infrastructure investment and help drive growth in the UK economy.
LGPS pension funds in Scotland and Northern Ireland were not affected by these proposals, and their investments have continued to be managed in the same way as previously.

Why is investment pooling happening?

Across the LGPS in England and Wales the scheme holds £263bn of assets (2017/18 figure). These assets are currently held in ninety one local pension funds and are used to pay the pensions of former members of the Scheme and their dependants. The LGPS is one of the largest funded pension schemes in Europe.

The Government commissioned research in 2015 which indicated that significant savings can be delivered by the creation of around six investment pools, each with assets of at least £25bn. Each LGPS administering authority was then obliged to join, or help create, an investment pool with other LGPS administering authorities.

Savings will be achieved through economies of scale and increased bargaining power; investment costs will be reduced along with other costs for all types of investment used in the pool.

The Government would also like the LGPS to have the capacity and capability to be able to invest in infrastructure e.g. railway, road or other transport facilities or housing supply. Currently only a very small proportion of LGPS assets are invested in infrastructure, it is hoped that the creation of investment pools will make it easier for LGPS funds to invest in infrastructure due to their increased scale.

Will the changes affect the amount of pension which LGPS members receive?

No, the LGPS is a defined benefit scheme which means that pension benefits are based on members' salaries and how long they have been a member of the Scheme. The pension benefits which members receive are not linked to investment returns.

Will the amount of pension contributions paid by LGPS members change?

No, the rate of contributions paid by members is based on how much they are paid.

Does this change who administers members' benefits?

No, the Government is only requiring LGPS administering authorities to pool the investment of their assets. There is no requirement for any change to the administration of the LGPS i.e. who calculates and pays pensions.

Who is responsible for deciding how a fund invests its assets and will this change?

Each LGPS administering authority decides how the assets for that fund are to be invested in line with its agreed investment strategy. This did not change when assets were invested via investment pools from 2018.

Where can I find out more information?

Further information about investment reform is available on the LGPS Scheme Advisory Board website here.