Government proposals to combine Local Government Pension Scheme funds into a single national fund could unlock almost £40bn of investment in infrastructure, the Pension Insurance Corporation (PIC), a specialist insurer of pension schemes, has said.
The idea of council pension reform is being discussed in many circles – with different views, welcoming and disagreement, being expressed on the idea.
The government has launched a pension review, which will include looking at consolidating the 86 English local council schemes and potentially – although it is probably a marginal possibility – creating a single local government fund.
English council pensions manage a total of £400bn of assets and because that money is overseen by dozens of managers and local politicians, LGPS schemes, it is often suggested by some, pay above-average fees and invest little in assets such as venture capital, life sciences and infrastructure.
PIC said that if the LGPS schemes were amalgamated into a single fund, it could invest in a similar way to the Canada Pension Plan Investment Board (CPPIB), which manages about £360bn to fund Canadian public sector pensions.
CPPIB, like other large Canadian public pension funds, has, what some have described as a “sophisticated long-term investment strategy”, involving investing directly in private companies and large infrastructure projects.
Around 9% of CPPIB’s assets are invested in infrastructure.
By contrast, LGPS figures suggest that barely 3% of its total assets are invested in infrastructure.
Although many of the LGPS funds portfolio institutional has talked to have cited the necessity of such investments being applicable to their overall long-term investment strategy, which, for them, is often lacking.
PIC said that a single LGPS scheme running in a similar way to a Canadian scheme could release up to £40bn into infrastructure such as green energy, electricity grids and transport networks.
The argument could naturally appeal to the new Labour government.
Putting this case, Tracy Blackwell, the CEO of Pension Insurance Corporation, said: “Consolidating many LGPS schemes into a single fund would give Britain a real sovereign wealth fund that could be run and managed to the same professional standards as world-leading schemes like Canada’s.
“A single LGPS with a sophisticated, long-term investment strategy might put up to £40bn into vital infrastructure. That could make a big difference to the UK’s economic prospects. This shows that with the right approach to purposeful investment, pension assets can deliver huge economic and social value to Britain.”
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