Current Issues in the LGPS
28 Jul 2017 - Estimated reading time: 5 minutes
It might be the school holidays but the Scheme Advisory Board (SAB) has given English LGPS funds some further homework to do on academy schools. Following the report commissioned earlier this year, SAB is seeking feedback on whether it is on the right lines. The consultation on LGPS academies objectives runs to 29 September, and is only addressed to funds and committees, not academies, councils or advisers. We will be producing a note soon, which will help you frame your own response.
MiFID II - Upgrading
The Financial Conduct Authority (FCA) has issued its final policy statement setting out the rules for implementation of the Markets in Financial Instruments Directive ("MiFID II"), effective from 3 January 2018. A key change is that there is now greater clarity in the "opt-up" criteria that is expected to make it easier for local authorities administering LGPS funds to elect to be treated as "professional" (rather than "retail") clients. Further details are provided in our Sixty Second Summary.
Making another statement
Following the High Court’s ruling that its original guidance on preparing and maintaining an Investment Strategy Statement was unlawful (due to it including the statement “…using pension policies to pursue boycotts, divestment and sanctions against foreign nations and UK defence industries…”), Department for Communities and Local Government (DCLG) has published revised guidance which has removed the offending statement. The DCLG has also gained permission to appeal the ruling and, we understand, they are planning to do so. There is no date for when the appeal will be held.
Reduction in MPAA
Following the announcement of the last general election, the Government was forced to trim its legislative ambitions in an effort to get key pieces of legislation, such as the Finance Act 2017, passed before Parliament was dissolved on 9 May. Among the clauses dropped was a proposal to reduce the Money Purchase Annual Allowance (MPAA) from £10,000 to £4,000 with effect from the 2017/18 tax year. This clause will resurface in what will be the Finance (No.2) Act 2017, assuming of course that it can gain sufficient Parliamentary support. The aim is to introduce the change with effect from 6 April 2017, which means that some individuals who had made pension savings in accordance with the old limits could face a hefty retrospective tax charge.
No fundamental change?
David Gauke, the new Work and Pensions Secretary, recently announced that tax relief on pensions “wouldn’t see any fundamental changes in the near future” and admitted that there was little political consensus for a radical overhaul on pension saving incentives. The use of the word “fundamental” is significant, with many in the industry fearing that the announcement leaves the way open for ever more tinkering i.e. reductions to the annual and lifetime allowances.
The downside to living longer
The latest review of the State Pension Age (SPA) has led the Government to recommend that it increases to 68, seven years ahead of schedule. The increase is planned to take place between 2037 and 2039 and affects those currently aged between 39 and 47. We estimate that this hits about 20% of LGPS active members, although the impact on LGPS finances is very small. Our 60 Second Summary provides more detail.
Counting the costs - update
We have highlighted previously the launch of the LGPS’ Code of Transparency for Asset managers (“the Code”). The Code’s aim is to help Funds obtain the data they require, to allow them to report costs on a consistent and transparent basis to the Scheme Advisory Board. We are now seeing a number of managers sign up to the Code (12 at time of writing) with more expected to follow. We discuss the Code further in the following blog.