LGPS Advisory Board warns Government proposals could “cut across” fiduciary duties

The warning comes in response to the Government's consultation on plans to change how the LGPS is managed, which closes next week (16 January).

According to the Government, the raft of changes "seek to provide long-term clarity and sustainability, putting the scheme on the strongest possible footing for the future".

One proposal would see the Secretary of State handed powers to require funds to join a particular pool, even if the other shareholder funds do not agree with such a merger.

However, the LGPS advisory board - which is a statutory body that offers advice to the Government and to administering authorities on changes to the scheme and the scheme's management - said the change could have "negative consequences".

In its consultation response, the LGPS advisory board said: "Our understanding is that this regulation will allow the SoS to require those funds to comply with the direction and accept the new fund, even where they do not believe that it is in the best interests of their beneficiaries, or where the pool company documentation is clear that new shareholders can only be admitted with the agreement of the existing shareholders.

"This cuts across their fiduciary responsibility which is something that MHCLG and Ministers have consistently said that they do not intend to do."

The body also raised concerns that a partnership that was not arrived at by consensus "could potentially have negative consequences for all the parties".

It said that the admission of a new fund into an existing partnership should require the agreement of the other funds participating in the pool.

The response added: "The Board believes that the admission of a new fund into an existing partnership should require the agreement of the other funds participating in the pool, and that securing this agreement should be achievable if the Secretary of State is acting in the best interests of the scheme."

It called on the regulation to be amended to be clear that the Secretary of State's consultation should include a detailed statement on their reasoning for the fund to be admitted to the particular pool, and how they arrived at their decision.

The advisory board also criticised proposed changes to the language on 2016 Regulations in relation to responsible investment and ESG considerations.

It said that the revised regulations refer to ESG considerations as “priorities and preferences”, which can be over-ridden by the pool on financial grounds.

“That means that it is ultimately pools and not funds who determine the acceptable balance between the financial and non-financial considerations on [Responsible  Investments],” the response said.

“This seems to directly usurp the fiduciary duty which sits, rightly due to the greater accountability, with funds,” it added.

Adam Carey