The pensions industry has slammed Reform UK’s plans to turn the Local Government Pension Scheme into a sovereign wealth fund.
Reform UK deputy leader Richard Tice said he wants to use the £500bn of assets in LGPS funds to establish a sovereign wealth fund with a “strategic British growth mandate”. This would invest in UK businesses to help stimulate the economy.
Tice, who is also the party’s spokesperson for business energy and trade, also proposed closing the defined benefit element of this pension scheme to new members, with workers switched into DC arrangements. He said this would save councils significant sums on pension contributions
Pensions UK, the trade body for the pensions industry said it was “concerned” over plans to remove DB benefits from new workers, saying such a move was not supported by evidence.
Pensions UK executive director of policy and advocacy Zoe Alexander, says: “We simply do not recognise the picture of the Local Government Pension Scheme that Reform UK has painted. The LGPS is one of the largest and most successful pension schemes in the world.
“It is fully funded and undergoing a major reform programme to consolidate its assets into six large investment pools ranging from £25-100bn, with savings to date estimated at £1bn, and with further savings to come.
“It is an exemplar of UK investment amongst pension schemes, with an allocation of around 17 per cent. LGPS investment performance for England and Wales has been strong, with the scheme having achieved a return of around 7 per cent per annum over the last decade.
Tice has previously criticised the LGPS, calling for reform to address the “overcharging and underperformance” in the scheme. A claim that has been widely rebutted by the industry.
Tice’s comments come at a time when the Government is proposing widespread consolidation across the pensions landscape, which includes changes to the LGPS, in order to drive greater investment into UK productive finance.
Alexander adds: “Reform’s proposals are lacking in detail, but its intentions to place all new staff into a DC scheme and to transform the scheme into a sovereign wealth fund are concerning.”
“The LGPS exists solely to fund the retirements of close to 7m local government workers, many of whom are low earners. It does not exist to manage a pool of assets to fund government projects.”
She adds: “With average pension sums received of around £5,000 per year, LGPS members rely on the scheme to invest solely to fund their retirements. Any policy proposing changes to the structure or approach of one of the largest pension funds in the world should be supported by evidence, and detailed plans.
“We stand ready to engage with Reform to ensure they have a full picture of the operation and strategic direction of the LGPS.”
Steve Webb, a partner at LCP and a former pensions minister said that changing the investment strategy of the scheme could potentially lead to higher contributions from councils, if investment returns were not sufficient to pay pensions to current workers and retirees.
