LGPS infrastructure investment limits set to double

Local government pension schemes could see caps on investment in infrastructure projects doubled, allowing almost £45bn to be pumped into local housing and transport under new government proposals

Schemes are currently restricted to allocating 15% of their funds to limited partnerships through which they can invest in infrastructure, property and private equity. But a consultation launched in November seeks to double the limits to 30%, equating to a potential £22bn of new investment.Communities and local government secretary Eric Pickles said allowing the 89 English and Welsh local funds to invest directly into infrastructure would remove barriers to development and provide taxpayers with long- term efficiency and value.He added: “By lifting the restrictions controlling local pension investments councils could pump a further £22bn directly into job-creating infrastructure projects that will boost our economy.“This is potentially a huge development and investment opportunity we simply cannot afford to ignore that also allows us to maintain long-term value for money for the taxpayer.”The consultation was welcomed by the industry, which has long-believed infrastructure projects are a natural fit for many pension funds, which have long time-horizons and are looking for ongoing income.The National Association of Pension Funds (NAPF) chief executive Joanne Segars said: “The current LGPS investment regulations are out of line with current government policy. On the one hand, the government says that pension funds should invest more in these projects, but on the other there are rules preventing this.“Our local authority members have told us on many occasions that they cannot make important investments because of out-dated rules which place limits on the amount that can be invested in infrastructure. These regulations are no longer fit for purpose and need urgent reform.”As part of its drive to increase access to infrastructure projects the NAPF, working alongside the Pension Protection Fund, has set up a new £2bn Pensions Infrastructure Platform to facilitate pension fund investment in infrastructure.Its founding investors include West Midlands Pension Fund and Strathclyde Pension Fund. It will invest in core infrastructure assets and will feature low leverage, low fees and inflation-linked cash returns of RPI+2 – 5%. The aim is to launch in the first half of this year.