Scotland’s second biggest local authority pension fund has expressed support for merging, rather than pooling the countries’ 11 local authority schemes, amid concerns over the governance of pooled pension assets.
The Lothian Pension Fund’s statement follows a proposal earlier this year by the advisory board of Scotland’s local government pension scheme to pool £36bn in assets currently managed by Scottish Local Authority Pension Scheme.
Responding to the pooling initiatives across 89 local authority schemes in England, which are currently being merged into eight pools, the advisory board introduced four different options for Scottish LGPS schemes, ranging from keeping the status quo, a more collaborative approach, pooling the assets or merging all assets into one or two larger funds.
Having considered all four options, Lothian, which currently manages £6.7bn, expressed support for merging LGPS funds as the preferred option.
Whilst acknowledging that the current de-centralised investment structure as inefficient, Lothian stated that it had concerns over the governance issues arising from pooling pension fund assets. It warned that pooling pension fund assets would introduce confusion in the decision-making process between funds and the pool and introduce an extra layer of governance and hence costs to the scheme.
Instead, Lothian proposes to merge fund assets whilst aiming to ensure an “effective, well resourced governance structure.” However, it stressed that local schemes should collaborate on a voluntary basis.
“Merger is not a panacea and it will involve significant change, particularly in relation to governance, which may not be palatable to some stakeholders and merger to a single fund could be difficult,” the scheme said.
Lothian’s position contradicts that of £21.5bn Strathclyde Pension Fund, which announced at the beginning of September that it did not see significant benefits in merging or pooling local authority assets.
