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Consolidating the Local Government Pension Scheme ('LGPS') could help to unlock more than £200 billion in private investment in infrastructure, new analysis from Pension Insurance Corporation plc ('PIC') shows.
PIC, a specialist insurer of defined benefit pension schemes, is a major investor in British infrastructure and is actively pursuing more long-term UK investment opportunities. PIC has led calls for better use of the LGPS’ almost £400 billion of assets in recent years. Chancellor Rachel Reeves is expected to set out plans for LGPS reform this week in her Mansion House Speech.
Ahead of that speech, PIC is publishing a research report on the LGPS, showing how LPGS assets can be used to support UK infrastructure and housing and “crowd in” huge sums from private investors.
Tracy Blackwell, CEO of Pension Insurance Corporation, and a member of the Treasury’s British Infrastructure Taskforce, said: “LGPS assets could and should be invested more in UK infrastructure projects. That isn’t happening because the LGPS is hugely fragmented. World-class infrastructure investors have at least £100 billion in assets, first-class in-house investment teams, and governance structures that allow them to invest for long-term returns in productive assets like infrastructure and housing. The LGPS could and should have the same.
“With this scale, the LGPS pools could take on equity sponsorship of UK infrastructure projects crowding in billions of pounds of private investment into British infrastructure and housing, boosting growth and creating significant social value. This would be good for the economy, good for taxpayers and good for communities.”
The report, entitled “How reform of the £400 billion Local Government Pension Scheme can drive increased investment in UK Infrastructure”, analyses the current performance of the LGPS compared to more successful Canadian public pension funds, and shows how UK local pensions can become a major driver of investment in the UK.
A key recommendation is that LGPS pools become major equity sponsors of infrastructure projects, investing and managing projects to give private investors the confidence to invest. That equity sponsorship role could crowd in £3 in private investment for every £1 invested by LGPS.
LGPS assets are currently valued at £392 billion but that is controlled by 86 small funds. That fragmentation leads to excessive spending on fund managers and advisors and prevents large-scale investment in productive assets.
After almost a decade of trying to persuade local schemes to pool their assets in larger funds, the report highlights that progress has been limited.
The report recommends that ministers should now force the creation of a small number of global-scale LGPS pools with at least £100 billion in assets.
A £100 billion pool might invest £14 billion in infrastructure1. If that investment crowded in private capital at a 1:3 ratio, each £100 billion pool would effectively deliver £56 billion of infrastructure investment - £14 billion of directly invested LGPS equity plus £42 billion of private capital crowded in.
Were all the assets of the LGPS meaningfully pooled and invested in this pattern, that might deliver around £55 billion of LGPS equity investment, potentially crowding in £165 billion of private capital for a total of £220 billion.
Such a sum invested over a decade would boost annual infrastructure investment by £22 billion.
If all capital was invested in the U.K, this would match the requirement identified by the National Infrastructure Commission, which has said that annual infrastructure investment needs to rise from £55 billion a year to more than £70 billion a year in the 2030s.
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Notes to Editors:
1) LPPI, one of the largest LGPS pools, invests 14% of its assets in infrastructure, compared to the LGPS average of 6%.
For further information please contact:
PIC
Jeremy Apfel
+44 (0) 207 105 2140
apfel@pensioncorporation.com
Apella Advisors
James Kirkup
+44 (0) 7815 706601
jk@apellaadvisors.com
About PIC
The purpose of PIC is to pay the pensions of its current and future policyholders. PIC provides secure retirement incomes through comprehensive risk management and excellence in asset and liability management, as well as exceptional customer service. At half year 2024, PIC had insured 348,600 pension scheme members and had £47.7 billion in financial investments, accumulated through the provision of tailored pension insurance buyouts and buy-ins to the trustees and sponsors of UK defined benefit pension schemes. At 30 June 2024, PIC had made total pension payments of £14.9 billion to its policyholders and had invested more than £13 billion in the UK economy, creating considerable social value. Clients include FTSE 100 companies, multinationals and the public sector. PIC is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and Prudential Regulation Authority (FRN 454345). For further information please visit www.pensioncorporation.com
