Trustees have criticised government plans to use £16 billion from the Local Government Pension Scheme for ‘levelling up’ projects, calling the proposals ‘ridiculous’ which could see these local authority schemes used as ‘piggy banks’.
Trustees have said that they do not want to see local authority schemes compelled to invest in local investment projects.
The government’s Levelling Up White Paper was published today, setting out plans to redress economic imbalances within the UK. It includes 12 “missions”, all of which are quantifiable and must be completed by 2030. The first aims to see pay, employment, and productivity grow and the disparities between the top and worst-performing areas narrow. The government says it will fund this using £16 billion from the Local Government Pension Scheme.
The paper was launched by Michael Gove, secretary of state for housing, communities and local government. PLT managing director Richard Butcher says: “There are two ways that we could go about doing this. If what he (Gove) is suggesting is that he is going to encourage local authorities to invest in local project then that’s fine.
“There are analogies here with the government’s long term asset funds where the Treasury, the Bank of England and FCA got together a working group, to look at the barriers that existed for DC schemes investing in illiquid assets. If he is going to do a similar thing to facilitate local authorities schemes investing in local projects, then that’s absolutely fine, but I’m not sure how much success it’ll have.
“If what he is proposing is that he will compel local authority schemes to invest in local projects, that will require a change in the law and it would require him over-ruling the fiduciary concept. That would be an absolute outrage.”
He adds: “It is up to local authority boards and trustee boards to determine what investments they invest in. If we cross the rubicon of the government saying ‘you must invest here’, then they are just trying to use pension funds as government piggy banks. What will then stop them in 15 years from now saying ‘we will compel local pension funds to redecoration the prime minister’s private apartment in Downing Street’.
Hymans Robertson Callum Stewart head of DC Investment, says: “In today’s ‘Levelling Up the UK’ White paper, the government has once again reiterated its commitment to relax DC charge cap rules to help encourage greater levels of investment in illiquid assets. Through the creation of new long-term asset funds, schemes will be able to access investments that could improve returns net of costs and charges over the longer term. The paper is evident of the willingness to explore illiquid investments.
“This will provide a vital opportunity to improve financial outcomes and will work to remove any remaining barriers preventing DC schemes getting the best for their members and should be seen as an exciting opportunity. This is another chance for pension schemes to improve engagement with their members. We know that individual DC savers have been telling the industry that they want their money to have a positive impact on the world around us, and that illiquid investments are a way in which to do this. Although costs and charges are likely to be higher than most existing DC funds, we continue to believe that in this instance it’s possible to pay more and get more for DC savers.”
Launching the white paper Michael Gove MP said: “Levelling Up and this White Paper is about ending this historic injustice and calling time on the postcode lottery.
“This will not be an easy task, and it won’t happen overnight, but our 12 new national levelling up missions will drive real change in towns and cities across the UK so that where you live will no longer determine how far you can go.”
The white paper also includes initiatives to increase healthy life expectancy, housebuilding, the quality of private rented housing, and income disparities across UK regions. It aims to spread opportunities and improve public services in areas where they are most needed, while also restoring local pride and empowering local leaders.
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