Pensions Minister, Torsten Bell, has recently confirmed that the government will be sticking to the March 2026 deadline for Local Government Pension Schemes (LGPS) pooling work. Pensions Age asks: Do the benefits of LGPS consolidation significantly outweigh the possible downsides such as potential loss of control?
Views on this topic hinge on understanding the fundamental goals of further consolidation – who is driving this and
why? Cited benefits are variously quoted as:
-
(Further) potential economies of scale
- Potential access to better investments (or at least the ability to consider these with larger centralised specialist teams)
- Some levelling of outcomes (this could be bad or good, depending on who you ask!)
The consolidation would come with potential governance and regulatory changes for most pools (for example, falling under FCA regulations).
The relatively tight deadline has been a distraction for some pools, suspending other work to focus on this issue. There would in theory be winners and losers, which raises concerns that, in the rush for these perceived benefits, unintended consequences might be bad for an individual scheme exploring this issue. Specifically on the loss of control point, pooling may move ‘local’ investment initiatives further afield and end up focusing on national priorities or be subject to further (real or perceived) government interference.
There is also a case to be made that, beyond a certain scale, there is a diminishing marginal benefit to continuing to grow in terms of asset size. Fewer funds would reduce the risk of scarce assets being ‘bid up’ by competing schemes. Furthermore, as seen in the initial round of pooling some years ago, underlying schemes could undermine the spirit of the process by rushing through investments (potentially at odds with the broader consolidated pool strategies) which retain independence but are harder to later consolidate. In essence, unless everyone is on the same page and all clear as the motives and perceived benefits, there is potential for a bumpy ride in the implementation.
Cartwright Pension Trusts senior adviser, Ian McKnight
