The chancellor has announced new reporting requirements designed to increase the amount council pension funds invest in the UK.
The move, announced in today’s Budget, means from as early as next month LGPS funds will be required to make an annual public disclosure of the breakdown of their asset allocations, including UK equities. A similar requirement will be placed on defined contribution pension funds.
Budget documents published by the Treasury warned: “The government will review what further action should be taken if this data does not demonstrate that UK equity allocations are increasing.”
The new annual reporting requirement will also “provide greater clarity on progress of pooling, through a standardised data return, taking effect from April 2024”.
This ramps up pressure following previous action over the past two years. In 2022, it set a target for the Local Government Pension Scheme in England and Wales to invest 5% of its assets in levelling up, and last year it added an aim for it to invest a further 10% in private equity.
Chancellor Jeremy Hunt said that across the pensions industry as a whole investment in UK equities has fallen to around 6%.
According to the most recent LGPS scheme annual report, for 2021-22, “the average fund now holds only 20% of its equity assets in the UK. Only 26 funds continue to hold a bespoke UK equity allocation.”
At least one LGPS fund has recently changed its investment strategy to reduce its exposure to the UK stock exchange. According to Oxfordshire Pension Fund’s annual accounts and report for 2022-23, it is also switching its remaining UK exposure “from the large companies with an international focus, to the middle and smaller companies which are more aligned to the UK economy and therefore the liabilities of the pension fund”.
Separately, Budget papers reveal the government foresees a role for the LGPS in helping relieve pressure on councils caused by soaring demand on children’s social care.
The document says the government will “work with the Local Government Pension Scheme to consider the role they could play in unlocking investment in new children’s homes”.
