London funds plan £20 billion pension collaboration

All 32 London boroughs and the City of London have agreed to develop a common investment vehicle (CIV) for the London borough pensions, in order to enhance investment returns, reduce costs and retain local control and accountability over pensions.

The London boroughs presently manage over £20 billion of assets in their pension funds, and in a news release on the CIV, they stated: “Some of these funds deliver performance that is among the best in the market. All funds are facing volatile asset performance and increasing liabilities”. The chair of the London councils, Mayor Jules Pipe said: “This development could benefit all Londoners by reducing the cost of local government pensions, potentially increasing returns on investment and opening up the possibility of more investment in infrastructure. Unlike many other proposals to reform public sector pensions, we can start work on this now as it does not require complex legislative change. Council-tax payers will continue to be protected by local democratic control as is the case today.”

A CIV is seen as an alternative to other approaches to saving costs for the Local Government Pension Scheme (LGPS), which the government wants, such as consolidating London borough funds into fewer, larger funds, or Super Pools. The London Pensions Fund Authority (LPFA) has proposed the latter in its response to consultation on the future of the LGPS. In its response, the LPFA said: “We also note that a range of options are currently being considered by other local authorities, such as framework agreements and common investment vehicles, however, LPFA strongly believe that some of the real benefits which are needed will not be realized if such an approach is adopted in the longer term.”

In the latest National Association of Pension Funds survey, 39% of respondents said that they were participating in the LGPS procurement framework, while 36% said that they planned to do so in the next year.