The Director presented a report to inform members of the Authority about the initial conclusions of and next stages in the Government’s Pensions Review and to gain approval for the approach to be taken in framing a response to the consultation exercises launched following the Mansion House Speech.

Members commented on the points raised by the consultation specifically concerning the future of local investment and the impact that pooling all assets would have on current fund specific plans and targets regarding natural capital and net zero goals.

The Director assured members that Border to Coast Pensions Partnership had already stated that they intended to proceed with local investment in a way that would not undermine the local investment already made by SYPA. The Chair added that this issue had been raised in a meeting with the Secretary of State for Housing, Communities and Local Government following the announcement of the Review and pensions funds had been reassured that local investment would remain at a local level. The Chair also added that SYPA was in very good position to make the pooling changes noted in the consultation given its current working relationship with Border to Coast Pensions Partnership and that this was in contrast to other funds who would need to implement more significant changes to meet the new requirements.

The Director explained that the review required all assets to be pooled by March 2026 and that Border to Coast Pensions Partnership would manage these investments but that this would be under an agreement with SYPA which, with intense planning at a detailed level, would give an opportunity for SYPA to be very clear on their investment beliefs including net zero goals and investment targets regarding natural capital and renewable energy.

Members expressed a concern that, when SYPA is only able to invest in pooled products, if its investment beliefs didn’t align with those of the wider Partnership then it would be restricted in implementing its beliefs. The Director agreed that this was a concern and stressed the need to constantly monitor the progress of the Review and lead on discussions in order to mitigate this risk.

Members queried whether previous issues with discrepancies concerning Scottish Law and asset pooling would be resolved. The Director assented that this issue needed to be added to the response to the consultation for the Government’s consideration.

Members queried whether there would be support from the Government were there a downturn in the market affecting investments following the enforcement of pooling.

The Director explained that the Government would not be responsible for advising on investment or bailing out pools or funds were there any issues. It was explained that instead SYPA and BCPP must continue to set long term investment strategies to weather all markets and limit the potential for losses. SYPA would need to set detailed investment strategy parameters for Border to Coast to implement and then hold them to account. The Independent Investment Adviser added that the goal would always be long term investment and maintaining a good financial buffer to weather any dips in the market.

Councillors expressed concern on the potential conflict of interest that existed in the concept in the consultation of pools providing investment advice on the investment strategies of its partner Administering Authorities. Some members also expressed the belief that pooling fundamentally undermines the democratic accountability of the LGPS and pools are too large to effectively represent members and employers and offer adequate accountability.

The Director accepted the concern regarding the potential conflict of interests but explained that with BCPP the advisory department and the investment department would be kept separate, and the advisory section would not be reporting to the Chief Investment Officer or monitoring performance. The Director agreed that the proposed move to a professional trustee mode would undermine democracy and had been clear on this in the draft response to the consultation and invited further discussion on this with the Government.

Councillors also gave the opinion that there was the potential for impact on equality not mentioned in the draft response notably younger members and members from global majority countries who may be affected by the potential impact of investment by the pools on climate change.

The Director and Chair welcomed ongoing input from all members.

RESOLVED: Members

a. Noted the Government’s proposals in relation to reform of the Local Government Pension Scheme.

b. Endorsed the headline response set out in Appendix A and the body of this report as the basis for a formal response to the consultation and further discussion with Border to Coast partners.

c. Agreed the process for finalising the formal consultation response set out in paragraph 5.11.

Councillor Dimond asked the record to reflect that he did not endorse resolution b. and did not agree with further pooling.