The threat by the Royal Borough of Kensington and Chelsea’s pension fund (RBKC) to leave London CIV seems to be settled, given that the fund has expressed its desire to stay in the pool.
Except everything is not what it seems.
After much hullaballoo about leaving the pool, Kensington and Chelsea have decided to stay and make up – at least for now.
Councillor Quentin Marshall, chair of the scheme’s investment committee, said that following some “constructive discussions” with London CIV, the committee has “decided not to leave at this time”.
There is some potential ambiguity in those quoted words with not even a hint of a permanent commitment to the pool.
The key reason for Kensington and Chelsea not leaving is thanks to the reasonably new chief executive of London CIV, Dean Bowden, who was appointed in November.
“The new CEO is taking the business in an exciting new direction with a renewed focus on value for our shareholders. RBKC is aligned to this vision,” Marshall said.
This is only the beginning
There must remain a certain level of scepticism about such an outcome.
The first being that built into this explanation is the potential for Bowden not to deliver in the way Kensington and Chelsea wants, creating a reason for a new division between RBKC and London CIV.
The second, as highlighted by portfolio institutional, is that Kensington and Chelsea have potentially been pressured not to leave the pooling system by forces in the government.
This would make sense from the government’s perspective given that it has, in documents issued with the Budget, highlighted that funds need to consolidate all their assets into their respective pools by March 2025.
That, at first sight, appears a long way out. But it does possess the opportunity for problems further down the line, given that Kensington and Chelsea have not consolidated any of its assets, presenting its own self-evident and timely challenge.
Put another way, in the years since pooling was created, Kensington and Chelsea have not been inclined to pool any of its assets with London CIV. But now it has to put 100% in within less than two years.
The red flags here are obvious. The government’s consolidation of assets is likely to create some conflict going forward. A conflict, it seems that has always been coming.
Rumours continually surround numerous funds who are unhappy with their pooling arrangements. But they remain rumours as funds are not willing to speak on the record.
The government is forcing the hand of such funds: going forward they will either need to step in line or stand opposed once and for all.
The Kensington and Chelsea standoff could therefore be seen as the beginning of much bigger things to come. With further conflict almost baked into future developments.
This is because whatever happens, the pooling system is going to go through huge change over the next two years. More change, it should be noted, since the inception of pooling.
And what path will be taken is open to question, depending on how funds react to the dramatic pooling shifts in the road ahead.
There is the clear plan marked out by the government in which funds consolidate all their assets into their respective pool.
A document accompanying the Budget stated in clear, categorical terms the government’s position on pooling going forward. “The government is challenging the Local Government Pension Scheme in England and Wales to move further and faster on consolidating assets.” There is no ambiguity left in this position.
An alternative scenario could be one in which upheaval is introduced to the pooling system created by unhappy funds who do not wish to consolidate their assets fully.
How the government would react in such a situation is open to debate. But the uncertainty it would create could be fundamental for pooling, creating potential divergent forks in the road for some funds and the pools.
Which outlook will be the road ahead for pooling, remains to be seen.
What’s next?
The next phase of how this saga could unfold will come with a soon to be published government consultation, which will reiterate the consolidation of assets deadline, but more importantly, set the direction for the future of pooling.
There is here the obvious prospect for further dispute, given details set out in the Budget proposed the possibility of the pooling system being overhauled.
“This may include moving towards a smaller number of pools in excess of £50bn to optimise benefits of scale. While pooling has delivered substantial benefits so far, progress needs to accelerate to deliver and the government stands ready to take further action if needed,” stated the government’s Budget document.
It is worth noting that only Border to Coast and LGPS Central manage assets of more than £50bn. It is safe to say, therefore, that the last act in the conflict between the local pension funds and the pools has not yet played out.
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