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Pension potential for local regeneration

gm_pension_fund_resizeBefore we get carried away with the regeneration possibilities of the £150bn which rests within Local Authority Pension funds, let’s remind ourselves about what are these pension funds for?

They are monies accrued by public sector workers who have been putting aside some of their income for retirement.  It also includes the money of pensioned employees who have paid into this fund over their working life.  This represents a sizeable proportion of the retired and existing workforce in any place.

Therefore, many families are dependent on the safe stewardship of these funds.  This stewardship means pension funds investing employees hard earned cash into property, infrastructure, whatever – but always ensuring a decent return on that investment.  Thus the pension funds act on employees behalf to ensure that the employee gets as much bang for their buck as possible.  So there is a responsibility that these funds are used appropriately and that return is achieved and risk is at an acceptable minimum.

Just because many local projects are starved of investment and the funds are there and it seems like a good idea, does not mean we can take risks.  The financial future for many people and families rests on these funds.  However, we can do more, and to do this, we need some careful deliberation and clarity as to what is possible.

The recent report, Investing for Growth, found that the possible was about respecting fiduciary responsibilities, whilst unlocking some local pension fund resource for more local impact.

Firstly, there are some local investments which can bring a return, and could be used as investment options for pension funds.  But perhaps some local areas are not presenting them as investible options.  In this, the report recommends a national ‘clearing house’ which gathers information about potential impact projects.  Furthermore economic development agencies and vehicles like local enterprise partnerships (Leps), need to package up local possibilities and up their game, as regards identifying real investment opportunities which can bring return for pensions funds.

Secondly, risk across different pension funds, can be shared by creating a pooled special purpose vehicle in which some local government pensions funds allocate and pool a small percentage of their funds for local projects.  The pooled vehicle would then invite local authorities and other public bodies to put forward bids for investment which would bring a return.

Thirdly, we need better guidance, case studies and examples of what can be done.  We already have good stuff happening like the Greater Manchester Property Ventures, however, this type of activity needs replicating in others areas and scaled up.

Fourthly, we need to review the guidance and legislation around local government pensions, enhancing the potential for greater flexibility.  And government, including the treasury, could do more in underwriting some of the risk in impact investments which have a potential social or environmental benefit.  It can’t be left to the pensions industry to do all of the heavy lifting.

Some things can now be done, and we need the local government community to learn more from each other and up its collective game.  However, we must ensure that we act responsibly toward the pension fund members and their families.

  • A longer version of this blog was first published on the LGC website

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