Local government minister manages to offend council funds after accusing schemes of being dishonest over outperformance

Houses-of-Parliament

Local government minister Brandon Lewis should have known that it was going to be tough gig as he walked on stage to the sound of silence.

He was at the National Association of Pension Funds annual local government conference to defend his government’s sweeping reforms to the sector’s £79bn scheme.

The Great Yarmouth MP had already had a taste of the reception he was likely to receive over lunch with the recently established LGPS shadow advisory board. 

“If there is something the shadow board don’t like, they are not shy in telling me,” he commented.

The government has rowed back on its most radical plans to merge the existing 89 LGPS schemes into bigger units, but he made it plain reform was non-negotiable.

“If you are going to deliver value for money to local tax payer more needs to be done,” he said

During questions, he revealed that following the publication of the government’s latest proposals earlier this month, “further consultation will be required.”

We have a duty to get on with this and get these savings as quickly as possible

He added: “We hope to be very, very clear about where we are going by the autumn. We have a duty to get on with this and get these savings as quickly as possible.”

It was clear from the questions that the focus of the sector’s concerns has shifted from structural issues to the consultation paper’s proposal to scrap active management of bonds and equities.

BL

Brandon Lewis MP

Trevor Castledine of the Lancashire scheme raised concerns over the concentration of risk inherent in such a big chunk of the UK pensions market being invested in passive strategies.

Rodney Barton, of the West Yorkshire fund, told the minister that he would have lost a quarter of his fund’s returns over the last 20 years by opting for passive management. The underlying message was that wholly passive management would mean settling for mediocre outcomes.

Still adopting an emollient tone, Lewis said he was “very interested” to see evidence from funds of where active management had delivered outperformance. He also said the next round of the consultation would aim to deliver a better way of comparing performance data across the local government sector.

And he said that once this next round of reforms was delivered, the LGPS could look forward to a period of stability.

With a final throwaway comment, Lewis undid a lot of his careful diplomacy over the previous three quarters of an hour

NAPF chief executive Joanne Segars, who chairs the shadow advisory board, couldn’t resist a sly dig at this point, recalling that the last time she had heard a minister promise stable pensions policy was from Treasury chief secretary Danny Alexander at the association’s investment conference. That was a couple of weeks before the Budget’s pension changes, she reminded delegates.

Nottinghamshire pensions committee member Ken Rigby further raised the temperature by accusing Lewis and his fellow MPs of having their ‘snouts in the trough’ by trousering bigger pensions increases while excluding local authority representatives from the LGPS. 

However with a final throwaway comment, Lewis undid a lot of his careful diplomacy over the previous three quarters of an hour.

If everyone were telling the truth about outperforming, then why do we still have deficits?

What he couldn’t square, Lewis explained, was that while individual council funds using active management say they outperform the market, just as many fail to do so, meaning that the net benefit is zero.

“If everyone were telling the truth about outperforming, then why do we still have deficits?”

A sharp intake of breath, followed by a collective murmur of disapproval, showed that the minister had struck a nerve. It’s not quite as simple as that was the response during the subsequent coffee break.

The minister will find winning over hearts and minds across the LGPS a more uphill task

Lewis has shown he is able to compromise, having ditched his earlier desire to merge the LGPS. However after this week’s appearance, the minister will find winning over hearts and minds across the LGPS a more uphill task.