Local Government Pension Schemes (LGPS) have “no room for complacency” and must “continue to innovate”, the Minister for Local Government Rishi Sunak has warned.

Speaking at the Pensions and Lifetime Savings Association Local Authority Conference today, 22 May 2018, Sunak praised the progress that has been made by LGPS, but outlined the challenges around data, transition of assets, governance and reporting.

Furthermore, Sunik highlighted the importance of long-term investments to the sustainability of the scheme, which can be helped by infrastructure investing.

LGPS pooling, which was implemented in 2015 and completed in April this year, saw 89 local pension funds in England and Wales pool their assets into just eight funds, four of which are now fully functional.

Sunik said: “All of the reforms were necessary to ensure that the LGPS was fit for purpose in the 21st century, however we can’t be complacent. I believe we must continue to innovate and that your scheme is affordable and sustainable for tax payers in the years to come.”

According to Sunik, an area which is expected to achieve this is infrastructure, noting that for the schemes' global scale, it “does not punch its weight” in terms investment.

Pools are expected to grow their investment in infrastructure to between 5 per cent and 10 per cent over the long-term, amounting to investments of roughly £25bn.

He said: “Most funds reconginse that infrastructure can provide good value to long-term pension liabilities as part of a diversified investment strategy.

“All funds should now have access to the scale and expertise needed to cease the right opportunities in what is generally a private market and reduce costs by moving into co-investment indirect investment.”

Despite this, Sunik outlined four challenges that LGPS would have to overcome in order to make pooling a success.

He called for pools to be “ambitious on the painful transition” of assets and the development and redefinment of the pools portfolios, calling on them to achieve it in a “cost effective way”.

Sunik also highlighted governance and reporting as two more key areas of improvement.

“With the creation of the pools, governance, both in the funds and the pools, is of even greater importance. There is still some way to go to ensure that we have the robust governance need to mange risk effectively and manage the full benefits.

“There is also more to do [on reporting], I want to see funds comparing their performance with the largest asset mangers in the UK and globally. I will also be expecting to see funds making appropriate use of benchmarks to find their chosen strategy based on the greatest possible transparency cost.”

Furthermore, Sunik calIed for more concerted action to improve the quality of data.

“The government actuary department was concerned about the quality of data they were receiving from the funds in their 2016 valuation, and poor data means less ability to manage risk”, he said.

“My team are working around the country with the Local Government Authority and other stakeholders to deliver events around the country to drive home our message on this.”

Sunik expects the schemes to make savings of £1bn to £2bn by 2023.

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