The Society of Pension Professionals (SPP) has expressed concerns about the potential impact of the government’s Local Government Pension Scheme (LGPS) asset pooling proposals on fiduciary duties and the absence of a cost-benefit analysis.

Responding to the Department for Levelling Up, Housing and Communities (DLUHC) consultation on LGPS pooling, SPP public sector chair, Clifford Sims, said the changes would “fundamentally disrupt” the work to find a balance between administering authorities and pool operators that had been achieved since 2015.

He argued that the sovereignty of funds was paramount and that, whatever merits there could be in supporting local investments or investing in private equity, the idea that funds should be directed to help with levelling up and the government’s drive for UK-centric private equity represented an attempt to “usurp the power” of investment for non-pensions purposes.

While the SPP issued its support for the efficient exercise of statutory powers given to administering authorities to meet LGPS members’ benefit obligations and the proper discharge of fiduciary duties, it said the consultation appeared to ignore the importance of these duties.

It said this was particularly the case in the ‘levelling up and private equity’ proposals, and the integration of investment and funding risk management.

The SPP urged the government to be mindful of the fact that the Supreme Court ruled that assets owned by LGPS authorities were not public money.

The proposed ‘targeted interventions’ could be contrary to the fiduciary duty of LGPS funds to make investment decisions to meet pension obligations, it warned.

Furthermore, the SPP raised concerns about the proposed transition of listed assets to LGPS pools by March 2025, citing worries about tight timescales due to authorities having to ensure the suitability of pool operators before any transactions occur while also facing competing priorities, such as implementing the McCloud judgment and preparing for pensions dashboards.

Its consultation response also argued that the proposal to classify passively managed assets as not being ‘properly’ pooled because of the legal model used to hold them could create an artificial rationale for driving further pooling and would involve unnecessary costs, defeating the financial case for pooling.

The SPP highlighted the absence of a cost-benefit analysis, particularly on the proposed move of “significant” passive portfolios to the pools, stating that such an analysis would be crucial in justifying the benefits of the policy proposals.

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