As discussed in our recent bulletin, the Summer Budget announced on 8 July included a number of key statements affecting UK pensions. There were also announcements impacting specifically on public sector pensions, and the Local Government Pension Scheme (LGPS) in England and Wales in particular,
LGPS Investment Pooling
In the Summer Budget, the Chancellor announced that the government will work with LGPS administering authorities in England and Wales to ensure they pool their investments to reduce costs while aiming to maintain the overall investment performance of the LGPS funds.
This announcement follows a previous consultation by the Department for Communities and Local Government asking whether common investment vehicles (CIVs) would achieve economies of scale for listed and alternative investments.
Documents released alongside the Budget state that the government will first invite local authorities to come forward with their own proposals for pooling investments to meet common criteria for delivering savings. A consultation will be published later this year setting out detailed criteria for the cost saving proposals and “backstop” legislation to ensure that those administering authorities that do not come forward with sufficiently ambitious proposals are required to pool investments.
The government’s approach seeks to strike a balance between encouragement and compulsion. The next few months will provide a time for funds to work together to develop proposals to achieve scale on terms of their own and we understand that there are already several local initiatives in progress..
The government estimates that it can achieve savings of up to £600 million per year with all local government schemes pooled.
Public sector pay
The Summer Budget also provided confirmation of the pay awards for nearly a million public sector workers. Pay will rise by 1% a year for the period 2016 to 2020.This follows announcements earlier this year that pay awards would be an average of up to 1% in 2015-16.
This announcement affects public sector workers in England and Wales, together with a limited number of offices in Scotland.