The Local Pensions Partnership (LPP)
We are delighted to confirm that the formation of the £10bn ALM Partnership with Lancashire County Pension Fund, has been finalised and the Local Pensions Partnership (LPP) was launched on 8 April.
The LPP will cover all aspects of pension fund management and be a fully-fledged pension service organisation, providing both jointly managed administration and pooled asset and liability management activities through newly created corporate structures.
Crucially, both Funds will continue to maintain their local accountability with LCPF Pension Committee and LPFA Board maintaining control of key strategic decisions. The formation of the LPP will result in fee reductions, access to different types and a greater amount of direct investments, cost reductions in administration and more effective liability management.
We are excited to have taken this unprecedented step of pooling two of the largest pension funds in local government. It is our joint aim to significantly reduce the Funds’ combined costs – we estimate by over £32m within five years – and with the benefit of economies of scale, further reduce our respective deficits. Both the LPFA Board and the LCPF Committee have considered detailed proposals and have agreed that such a partnership would prove beneficial to both organisations, and presents an exciting opportunity that could assist in developing an alternative LGPS model.
The partnership will build on the existing expertise across all locations and increase co-operation and collaboration across all aspects of the pension funds, under a strong governance framework. We aim to provide industry-leading standards of administration and so provide our members and employers with efficient and cost-effective services.
London Pensions Fund Authority will remain legally responsible under the Data Protection Act 1998 for member and employer data with LPP and LPFA staff processing the data on behalf of members and employers.
LGPS Fund Pooling
On 1 May 2014, the government launched a consultation: Local Government Pension Scheme: Opportunities for collaboration, cost savings and efficiencies.
You can see our full response to the consultation here but in a nutshell.
The consultation rightly identifies the need for change, but wrongly prescribes a narrow solution. We believe that the single asset class CIV proposal would create a new tier of entities and attendant bureaucracy without proper incentives to focus on the underlying liabilities.
LPFA strongly believes an Asset & Liability Management (ALM) Partnership model would be the optimum structure with which to reduce costs and give direct access to classes of investment like infrastructure and housing which better match fund liabilities. This would increase the chance of maintaining stable contributions and eliminate deficits over time. Our model can happen within existing legislation and we are already working with like-minded funds to develop a partnership.
The ALM partnership model, if widely adopted, would deliver the same economies of scale while ensuring the assets selected (listed and alternative) were chosen precisely for the consolidated liability set of the partners. This integrated approach to asset and liability management would retain local accountability and give scope to enhance and rationalise governance under new Pension Board arrangements.
LPFA believe the long term interests of the LGPS will be best met by allowing Authorities to set up multi-asset, collective arrangements with strong internal management capabilities which best meet their investment needs based on their particular aggregate liability profile.
Will it affect me?
Why is this happening?
It has long been acknowledged that the two funds have a similar approach to dealing with the pension fund issues that they encounter; both work in similar ways and each will compliment the other with their approach to investment and pension administration issues. The partnership will provide an opportunity to build on existing expertise across both sites and increase co-operation and collaboration across all aspects of the organisation. Within the Local Government Pension Scheme (LGPS) Government is asking more and more funds to find ways of working together to provide efficiency savings and reduce costs where possible, the partnership is one of the ways that this can be done – by two like minded funds combining assets and their common approach to administration.
The LPP’s structure will also provide the benefit of investment scale and ensure that industry-leading standards of administration services and governance will be achieved. Going forward, it is planned that the LPP will significantly reduce the Funds’ combined investment costs by over £32m within five years and further eliminate respective deficits over time. This will mean that long-term employers will have a greater ability to control the cost aspect of the pension fund as it is they who have to ensure that the cost of the scheme are met and that pensions are paid when they become due.
What is happening with the Pension Fund/Scheme?
The Lancashire County Pension Fund (LCPF) and the London Pensions Fund Authority (LPFA) announced that they have now agreed the structure of a £10bn Asset Liability Management Partnership, which will initially be known as the Local Pensions Partnership (LPP).
Does this mean the pension fund is being taken over or being privatised?
Not at all, both funds will continue to maintain their local accountability with LCPF and LPFA maintaining control of key strategic decisions. The new body, LPP will be jointly owned by LCPF and LPFA.
I thought the benefits of the scheme were guaranteed anyway?
They are, but this means that an employer has to guarantee the benefits long in advance of them coming into payment and it can make the management of the pension promise difficult to forecast over time meaning that an employer may have to find additional financial resources at times when cash flows are limited or restricted, better financial forecasting will be achieved by the way in which LPP aims to operate.
So does this affect the benefits that pension scheme members will get?
Not at all, the benefits will remain as they are guaranteed by Statute. The very nature of the LGPS as a public sector scheme ensures that all benefits are guaranteed and this will not and cannot be changed under the partnership arrangements, the only change will be the way in which the benefits are funded long term. The new arrangements will give more certainty to employers and provide a more efficient and cheaper way of investing the funds held.
Will we be told more about what is going on?
Yes, as the organisation and its structure is developed more information, when it is known will be made available via the usual channels including this website.
The Local Pensions Partnership (LPP) commenced operations on 8 April 2016.
We hope you will agree with us that this is a unique opportunity for your pension fund to set a new standard in the way in which the LGPS is run.
If you do have any questions that you would like us to answer these can be sent to us at our usual address, or by emailing the fund using firstname.lastname@example.org
What is a Deferred Benefit/Member
Yes- the same rules and regulations will still apply, and the fact that the Local Pensions Partnership (LPP) will be carrying out investment business on behalf of LPFA and Lancashire, means we are putting in place ever more stringent controls and reporting requirements to ensure the highest standards are maintained and that full and proper accountability is in place.