The Lothian Pension Fund (LPF) Group reported a net return on investments of £300m for the 2019/20 financial year, less than half the return of £658m achieved in 2018/19.

Its annual report also revealed that net assets of the fund fell over the year to £7.48bn, as at 31 March 2020, compared to £7.82bn on 1 April 2019.

The LPF described 2019/20 as a “year of significant progress”, despite disruptions caused by the Covid-19 crisis.

It highlighted that investment performance had remained broadly in line with benchmark returns for a five- and ten-year periods with lower risk.

It acknowledged that the final months of the financial year had seen “unprecedented disruption” as a result of the ongoing pandemic, with this in turn impacting some scheme risk assets.

The scheme added that whilst return had been “relatively weak over the past year”, funding levels continued to be "strong", arguing that long-term horizons, and statutory protections will ensure that members benefits remain "in safe hands".

For instance, whilst annualised returns to 31 March 2020 for the last year were -3.6 per cent, this increased to 6.8 per cent for five years, and 8.1 per cent for 10 years.

The scheme explained that a shift to internal investment management had also seen a “move away from complicated and expensive investment vehicle structures, such as fund of funds”, whilst also “significantly” reducing the layers of management fees occurred.

Industry benchmarking provided through CEM, which utilises a global database of 332 pension funds representing £7.2trn in assets, showed that LPF’s investment costs of 0.39 per cent of fund assets were “significantly lower” than the benchmark cost of 0.49 per cent.

This represents an equivalent annual saving of approximately £7m, and, according to LPF, largely reflects the fact that the fund manages a relatively high percentage of assets internally, as well as the lower exposure to fund-of-fund investment vehicles.

LPF CEO, Doug Heron, stated: “Against the difficult backdrop of Covid-19, there were many notable highlights for LPF in 2019/2020.

"We built a team to manage our directly held property assets internally, resulting in significant cost savings and increasing our level of control on how that strategy is executed.

"We also extended our investment partnerships with other Local Government Pension Scheme (LPGS) funds and broadened the scope of the FCA authorisation for our investment firm, LPFI, establishing the potential for us to move beyond strategic advisory services to investment management.

“But one of the things I’m most proud of in the last financial year is the resolve and fortitude of our team.

"They have continued to serve and support our members and employers during these difficult times whilst working remotely and facing their own personal challenges.”

Over the past year, the scheme paid £252.4m in pensions to 31,500 pensioner members, and their dependants, as well as gaining a further 7,489 new members.

The scheme met or surpassed seven out of 10 customer service performance targets over the past year.

This included securing a 96 per cent satisfaction rate amongst employers, active members and pensioners through scheme surveys, as well as ensuring benefit statements and payroll are completed on time.

However, the report also highlighted concerns around growing complexity within the LGPS, stating that any age discrimination remedy following the McCloud case is likely to “significantly increase workload” and leave members with various benefit scenarios.

The scheme emphasised that it had "closely examined resource levels" in preparation for this, as well as taking steps to train additional administrators.

It warned however, that sponsoring employers “will also feel the effect” of any government remedy, warning that regardless of preparation, they will remain exposed to any limitation in resourcing and systems.

The report stressed the need for a “simpler scheme” structure, emphasising that this could increase administrator efficiency and lower operating costs for the scheme.

LPF stressed that this would also allow members to more easily understand, and assign value, to the benefits to which they’re entitled to.

“Setting the rules is beyond our remit but we stand ready to support any government led initiatives that intend to achieve this outcome,“ it concluded.

The report also emphasised the schemes' work against climate change, reiterating much of the work outlined in the scheme's recent statement of responsible investment principles.

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