We use data from the Trustee Report 2022 to answer the question: is the LGPS world much different from the corporate DB space? The answer is yes. LGPS professionals are under greater regulatory pressure and need more training and support. Interestingly, LGPS schemes are more proactive in two key areas – member engagement and sustainable investing.

 

 

The growing regulatory complexity of UK pensions is a concern uniting LGPS and other DB schemes. However, LGPS professionals are almost twice as likely to worry about their growing legal responsibilities. This is interesting to see and suggests they may be subject to greater regulatory scrutiny. 

 

Local government schemes are subject to regulatory oversight from the Pensions Regulator (TPR), which means that they have work to do under the new Single Code of Practice. But they also have to follow guidance from the Department for Levelling up, Housing and Communities (DLUHC), which introduced requirements for greater pooling of assets and investment in the levelling up of the UK economy in 2023.

 

This highlights two very different governance models. As a result, LGPS funds place much greater emphasis on value for money from asset managers, while DB schemes focus on value for money from consultants. 

 

 

 

The additional layers of governance complexity in the LGPS space likely explain, at least partially, why 50% of LGPS schemes prioritise better training for lay trustees, compared with just 28% of DB trustees. This suggests knowledge gaps – something that Hymans Robertson also flagged in their LGPS National Knowledge Assessment Report in 2022. In particular, knowledge on investment performance, risk management and financial markets is deteriorating.

 

This may be because LGPS pools are playing a bigger part in investment decisions and monitoring. But there are signs of trouble: one in three LGPS professionals say the speed of decision-making needs improvement. In this context, pooling arrangements are crucial to LGPS governance – but in addition to achieving greater economies of scale, pools need to also aim for more integration.

 

 

 

When lifting the bonnet on the concrete challenges that different kinds of pension funds are confronted with, we see two totally different worlds. Unsurprisingly, DB schemes prioritise endgame planning and equalising benefits as a key prep step.

 

In stark contrast, half of LGPS schemes focus on getting ready for pension dashboards and getting member data in check. As a result, they are thrice more likely to name member engagement as a challenge than their DB peers. 

 

 

 

As we see in the previous chart, LGPS schemes are also more concerned about ESG reporting than their DB peers. This is not a surprise: LGPS schemes have long led the way and set the standard in sustainable investing. For example, they have been early voluntary adopters of international sustainability frameworks, including the recommendations of the Task Force of Climate-related Financial Disclosures (TCFD) as well as the UK Stewardship Code. 

 

LGPS schemes also demonstrate greater commitment to net zero targets, with 55% aligning with 2030 emission reduction, compared with just 17% of DB schemes (chart not shown). Nearly three-quarters of LGPS schemes are also proactively assessing opportunities arising from climate change, versus only 31% of DB schemes (chart also not shown). In fact, a significant 44% of DB schemes have not committed to any ESG standards or initiatives.

 

 

 

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