PIC has been a long-term advocate of consolidating dozens of council pensions into a single fund. PIC’s CEO, Tracy Blackwell, is a member of the British Infrastructure Council, which advised Labour in opposition on investment policy.
The idea of council pension reform is gaining momentum, with the Government launching a pension review to look at consolidating the 86 English local council schemes and potentially creating a single local government fund.
English council pensions manage a total of £400 billion of assets. Because that money is overseen by dozens of managers and local politicians, LGPS schemes often pay above-average fees and invest very little in the most productive assets such as venture capital, life sciences and infrastructure.
PIC said that if the LGPS schemes were amalgamated into a single fund, it could invest in a similar way to the Canada Pension Plan Investment Board, which manages about £360 billion to fund Canadian public sector pensions.
CPPIB, like other large Canadian public pension funds, has a sophisticated long-term investment strategy that involves investing directly in private companies and large infrastructure projects. Around 9% of CPPIB’s assets are invested in infrastructure. By contrast, LGPS figures suggest that barely 3% of its total assets are invested in infrastructure.
PIC said that a single LGPS scheme running in a similar way to a Canadian scheme could up to £40 billion into infrastructure such as green energy, electricity grids and transport networks.
Tracy Blackwell, Pension Insurance Corporation CEO said: “Consolidating many LGPS schemes into a single fund would give Britain a real sovereign wealth fund that could be run and managed to the same professional standards as world-leading schemes like Canada’s.
“A single LGPS with a sophisticated, long-term investment strategy might put up to £40 billion into vital infrastructure. That could make a big difference to the UK’s economic prospects. This shows that with the right approach to purposeful investment, pension assets can deliver huge economic and social value to Britain.”
In a briefing for policymakers on LGPS reform earlier this year, PIC estimated that LGPS consolidation could save taxpayers £1 billion a year in fees to investment managers. (See Notes). The Government has now made a very similar estimate of potential savings.
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