The future of the LGPS remains bright but continued vigilance is required

Tiffany Tsang, Head of DB, LGPS and Investment, explores the long-term sustainability of the Local Government Pension Scheme.

The long-term sustainability of the LGPS currently looks secure; cash flow overall is positive, with robust investment strategies embedded across the scheme. Its continued cross-fund collaboration across all areas of governance and administration remains a key strength as well. However, without vigilance, various factors could threaten this stability. The complexity of its regulatory landscape, and the operational burdens that it creates, is perhaps one of the most important issues facing the scheme now.

Background

One of the PLSA’s flagship projects – LGPS: Today’s Challenges, Tomorrow’s Opportunities – launched its report at its Local Authority Conference this June. The project was initiated by the Local Authority Committee in 2021 to provide PLSA members, and those with an interest in the LGPS, additional information to aid and inform ongoing debates about the scheme’s purpose and sustainability. There was strong engagement with our LGPS members throughout this project, including: 98 survey responses representing a total of 66 funds; four workshops last summer, each with up to fifteen participants; and with over 40 volunteers to be interviewed, though we were only able to hold ten in-depth one to one discussions.

With 24 recommendations, it also aims to suggest practical next steps to some of the 14 challenges highlighted, which range from the difficulty in navigating intricate regulation to issues relating to systems and people, such as staff retention and competition for talent. The LGPS was analysed under four key themes: the Regulatory and Operating Environment; LGPS Employers; the LGPS and Scheme Members; and Operational Sustainability.

Regulatory complexity and the talent to address it

The independent research was built on the experiences senior LGPS officers have on a day-to-day basis. These included details on their work on the implementation of regulatory changes in the past decade. This kind of work requires skills and experience that are hard to find; competition for talent remains fierce for the LGPS.

The complexity and sheer number of LGPS regulatory changes over the past decade also mean that existing resources are incredibly constrained; its people needs to both implement the continuous array of government expectations as well as to keep the show on the road for the multiple strands of “business as usual”, such as reviewing investment strategies and working closely with LGPS employers to ensure that they are fully up to date on their responsibilities to the scheme.

Savers

The overall objective of the LGPS – to provide a vital financial safety net for workers in retirement, many of whom have contributed to the provision of local public services and who are in lower paid work – is another key strength of the scheme. Throughout the research project, LGPS participants consistently raised the desire to “prioritise savers”, which could include creating or utilising other channels of engagement, continuing to improve LGPS service standards, or protecting members from fraud risk and pension transfer scams. However, given limited resources, this objective may become increasingly deprioritised if the trend to direct pension schemes towards aims other than pension provision continues to increase. The politicisation of the scheme, and pensions more broadly, is a potential risk, given a variety of recent government initiatives, such as DLUHC’s levelling up agenda in England and Wales. It will be important to continue to ensure that the core purpose of the LGPS is not lost by wider political discussions.

Next Steps

There are many opportunities now, which include working with government and regulators to lessen regulatory complexity, doing more for savers, and doing more to help employers understand their crucial roles within the scheme. With even more regulatory related items due to arrive soon, including guidance on pooling assets, and the implementation of the McCloud Judgement, the need grows to review and act on the findings of the research report. There is also an opportunity to champion the scheme as an important and compelling place to work by highlighting its purpose, scale, and career opportunities. The PLSA policy team is now working with our Local Authority Committee on next steps. If you’d like to share your views on how to build this programme of work, please get in touch.