Written By: Howard Bluston
Howard Bluston discusses the implications of the consultation process for levelling up as it will affect pension funds, and sees this as an opportunity for discussion of pension funds in general
Levelling Up, as it applies to pension funds, is the term used by the current government to apply to the responsibilities under the new Department for Levelling Up, Housing and Communities, currently overseen by cabinet minister Michael Gove. What we in the pensions world are concerned with specifically is the consultation process as it involves pension funds, in our case that of the LGPS.
Let me say at the outset that I’ve been hoping that the new (albeit only proposed) legislation will be helpful overall for the performance and administration of pension funds. However, there are many views, which I’ll come to, that obviate this state of affairs. I should also clarify that the legislation only applies to schemes in England and Wales, and that there will be a concerted consultation process initially – let’s hope so!
The scope of the consultation makes it clear that cost control is a vital aim for schemes, and it points out the salient conclusions of the 2016 scheme valuations and actuary review. It also emphasises the Treasury cost controls and juxtaposition with changes in cost control in the LGPS.
There are one or two aspects that either puzzle or disturb me. Though I’m the eternal optimist, and think this could be a great, if not unprecedented, opportunity for a full and frank discussion on pension fund investment generally. There has been more and more awareness of the significance of pension funds generally, from discussion about raising the retirement age to 67 to the intricacies of investment. There is constant media focus on virtually every aspect of pension funds, to which the recent increase in the state pension has given rise, and in the recent budget there was tangible encouragement for the over-fifties to extend their working lives, by increasing tax relief limits on pension contributions. The annual limit on pension pots will be increased to £60,000 (a 50% rise), the Lifetime Allowance (LTA) charge is removed, plus other changes.
Yes, I digress, but all this highlights the growing interest in all facets of pension fund investment. Right, back to our immediate LGPS concerns. There doesn’t seem to be any reference (yet) to the role of the pools, their relationship to the individual LAPFs, the input of the LGA, the responsibilities of asset managers, the issue of fees, the rise of ESG, sustainability, responsible investment, the intricacy of TCFD, the climate change issue generally and a myriad of other issues. Then there’s the continual debate about the future of defined benefit vs defined contribution and the possible (endless?) discussion on another course, such as defined ambition.
What about the government’s role itself? Going back to the Pensions Act of 1995, the basis of our modern legislation, we’ve had at least 18 Works and Pensions ministers, with countless juniors supposedly responsible for the pensions industry. The current incumbent in charge of the pensions portfolio is Laura Trott, the member for Sevenoaks, an Oxford graduate in history and philosophy, younger than my youngest offspring, who at least may bring fresh thoughts, if not experience, to the role. George Osborne, as we know, influenced much of the current situation in the LGPS, and indeed affected company pensions. In that sphere there has been much recent activity with regard to buy-outs, buy-ins, mastertrusts etc, which I note in my role of trustee training (only regarding investment advice, thank goodness!). My previous incarnation as Chair of an LGPS Pension Fund Committee has come in useful for dealing with staff and union members in understanding the workings of their respective funds. Let me take this opportunity of expressing my appreciation to all officers of pension funds for the hard work they do, and who will be burdened with increasingly more complex responsibilities in the running of schemes.
I make no apology for this provocative piece, but implore those who have any influence to bring pressure to bear on the relevant ministry and Treasury authorities to consult with resolve, and make clear, effective legislation, which will also make The Pension Regulator’s job easier. The latter will also have to get to grips with a new DB funding code. Pension reform now will affect greatly future generations. It can be a blueprint for the future and a beacon globally. Good luck to all!’