Agenda item

The purpose of this report is to update the Board on recent developments within the Local Government Pension Scheme (LGPS) regulatory environment and any recent consultations issued which would have a significant impact on the Fund.

Sawan Shah (Head of Finance, Brent Council) introduced a report from the Corporate Director Finance & Resources that updated the Board on recent developments within the Local Government Pension Scheme (LGPS) regulatory environment along with recent consultations issued which were likely to impact on the Fund.

In terms of key updates, the following issues were highlighted:

• The LGPS “Fit for the Future” consultation which had closed in January 2025 focussed around governance and management of the eight existing investment pools and measures to accelerate asset pooling the Local Government Pension Scheme (LGPS).  Proposals arising from the review had include the need for pools to become Financial Conduct Authority (FCA) regulated entities capable of managing assets internally and providing investment advice to their LGPS partner funds; funds being responsible for setting their strategic asset allocation but delegating implementation to the pool. Funds and pools within London CIV were required to work closely with combined mayoral authorities to develop a plan for more investments in local growth, having regard for local growth plans and the introduction of a new biennial governance review process for LGPS funds.  The Board was advised that the Scheme Advisory Board (SAB) had published its response on 10 January 2025 followed by the Local Government Pensions Committee on 16 January 2025. Brent had also submitted a response to the consultation with detail also awaited as to whether any further updates in relation to the LGPS would be included as part of the Chancellor’s Spring Statement.  Members noted that Brent’s Pension Fund was already well placed in respect of the requirements given the pooling arrangements already established through the London CIV.

• On 16 December 2024, the Ministry of Housing, Communities and Local Government (MHCLG) had launched an open consultation setting out proposals for overhauling the local audit system in England. The consultation sets out a strategy to improve the local audit system and had included a specific proposal to decouple pension fund accounts from the main accounts of the administering authority. Brent had already expressed its support for the proposal, recognising this as something which the SAB had also recommended.

·       In October 2024 the Ministry of Housing, Communities and Local Government (MHCLG) had published LGPS statistics for 2023-24 with highlights including total expenditure of £17.1 billion, an increase of 11.9 per cent increase of 11.9 per cent on 2022-23; total income of £20.7 billion, an increase of 19.3 per cent on 2022-23; employer contributions of £10.5 billion, an increase of 24.6 per cent on 2022-23; the market value of LGPS funds on 31 March 2024 as £391.5 billion, an increase of 9.0 per cent since 31 March 2023 and 99,505 retirements in 2023-24, an increase of 6.3% on the number of retirements This was considered to reflect a positive year for the LGPS in terms of investment returns and contributions as well as the maturing nature of the scheme.

• Details on the 2025 – 26 employee contribution bands which would be effective from 1 April 2025, as detailed in section 3.23 – 3.2.4 of the report.

• The extension of Inheritance Tax to Death Benefits with the Government having proposed removing the distinction between discretionary and non-discretionary payments on 6 April 2027. If introduced the change would mean that all LGPS death grants would be subject to Inheritance Tax (IHT) from April 2027.

• The arrangements for introduction of the Teachers excess service with the Board advised that as Teachers could not be admitted to the final salary section of the Teachers’ Pension Scheme after 31 March 2015, they were now awarded a period of “excess service” in the LGPS instead. The early stages of implementation of the process had involved Teachers’ Pensions (TP) identifying members in scope and verifying their excess service with employers with next steps involving Administering Authorities verifying the data supplied in order to set up LGPS records for members in scope (driven as part of the wider McCloud process) and requesting contributions from the TP.

• The update on the Normal Minimum Pension Age (NMPA) which the Board noted was due to increase from 55 to 57 on 6 April 2028

The Chair thanked Sawan Shah for the comprehensive update provided and then welcomed contributions from members, with comments raised summarised below:

• In discussing the impact of the increasing percentage of retirements identified as part of the most recent statistics relating to the LGPS on Brent’s Fund the Board was advised that this would be one of the issues reviewed as part of the triennial valuation of the Fund assets and liabilities due to be undertaken during 2025.  The regular quarterly Investment monitoring updates provided for the Sub Committee included details on the Fund cashflow position.  Whilst the level of retirement would impact on the overall cashflow position, members were advised this remained under constant review and had not been identified as a concern at this stage given the current funding level estimated to be 134% and maturing nature and age profile of the Fund.

• In seeking further details on the diversification of investments held by the Fund under the current pooling arrangements, members were assured that investments being made through the London CIV involved a wider range of fund managers and were spread across a wide range of multiple asset classes managed by numerous investment managers.  The CIVs role was to provide a platform of products with a range of options, including infrastructure, private debt, bond funds, and equity funds, each run by different managers and had been created to allow LGPS funds to group together and achieve economies of scale. Moreover, senior management meet regularly with London CIV to ensure performance standards remained high.

With no additional issues or comments raised, the Board welcomed the update provided and RESOLVED to note the overall report and recent developments outlined in relation to the LGPS.