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The Pensions and Lifetime Savings Association has welcomed the new Local Government Pension Scheme (LGPS) draft investment regulations, in particular the aim to make them like the ‘prudent person’ approach, but questions whether in stripping back these regulations the Government has gone too far.

This is in response to the consultation Revoking and replacing the Local Government Pension Scheme (LGPS) investment regulations 2009, which closes today (Friday).

Commenting, Joanne Segars, Chief Executive of the Pensions and Lifetime Savings Association, said:

“The Pensions and Lifetime Savings Association has argued for almost a decade that arbitrary limits on the amount LGPS funds can invest in certain types of legal structure are prescriptive, out-of-date, and do not best meet the needs of funds or beneficiaries. So we fully welcome the removal of these limitations and the move towards the prudent person approach. But there is a danger that government may have gone too far in a number of areas.

“One area of concern centres on fiduciary duty. It’s important to recognise the ultimate purpose of LGPS investments − which is to pay members’ benefits – and it would be helpful to make this clear in the investment regulations.

“Whilst we agree with the Government’s proposals for pooling there is a risk that such broad powers, combined with the lack of an explicit fiduciary duty, could be used by future governments to direct what and where funds invest. It would be more reassuring for employers and scheme members if there were greater checks and balances included in the regulations before using any power to direct.

 “We are also sceptical about the value of the impending guidance instructing how policies on environmental, social and governmental (ESG) factors should reflect the UK’s foreign policy. There are valid reasons why pension funds might apply a particular screening of divestment strategy in line with the long-term interest and values of members and it seems unhelpful for Government to meddle with this flexibility.

“Finally, the six month timescale for implementation of these regulations could prove incredibly challenging for funds, especially at a time when they are focusing on pooling their investments. We would recommend a more proportionate timescale – potentially linked to the broader timescale for the creation of pooled vehicles.”

Read the Pensions and Lifetime Savings Association’s full response to the consultation on our website.