Introduction to the Local Government Pension Scheme
This webpage offers a basic introduction for those new to divestment campaigning on how local government pensions are administered, who is responsible for managing the fund and making decisions.
What is the Local Government Pension Scheme, and how does it work?
When people refer to fossil fuel divestment in the context of local authorities, this almost always refers to divesting council pension funds.
There are just under 7 million members of the Local Government Pension Scheme (LGPS). These are the current, former or retired workers employed by local authorities across the country – including social workers, refuse collectors, support staff in schools, and council administrative staff – whose pensions are administered and invested through one of the 98 localised LGPS funds.
While there are hundreds of local councils, there are just 98 funds administering pensions, and so these don’t necessarily map neatly on to councils. Generally speaking, one council will be named as the fund’s statutory “administering authority” (you can find your fund’s administering authority here). This is the local authority that is responsible for managing the fund and has legal responsibility for the fund and its investments. But in almost all cases, there are multiple councils (city, district, borough and county councils) all attached to and paying into the same fund.
Example: Greater Manchester Pension Fund
- Tameside Metropolitan Borough Council is the “administering authority” for the GMPF.
- Bolton, Bury, Oldham, Rochdale, Salford, Stockport, Trafford and Wigan councils all pay into the fund, as well as some smaller authorities like parish councils.
- While any council that pays into the fund can pass a divestment motion (and in some cases may also have representation on the pension fund committee), the responsibility for the fund lies predominantly with the administering authority.
- This means that pressure for the fund to divest made by the administering authority (in this case – Tameside Council), would put significant pressure on the fund to divest. However, this is not to say that if Bolton, for example, were to pass a divestment motion that this would not also put pressure on the Greater Manchester fund to divest.
This is different in London, where there is a separate fund for each of the 32 London boroughs (e.g. Hackney Council’s fund is Hackney Pension Fund, Croydon Council manages the Croydon Pension Fund).
Additionally, in Northern Ireland, there is just one fund (NILGOSC – the Northern Ireland Local Government Officers’ Superannuation Committee) for the entire region.
Where and how are decisions made about LGPS investments?
Within each fund, there is a Pension Fund Committee (PFC) that is made up of councillors from the administering authority, and often from the other contributing councils (although not always). The PFC is chaired by a councillor from the administering authority, and it also often contains a number of trade union and/or employer reps. If you Google the name of your local pension fund and “committee”, you should be able to find a full membership list and their contact details.
Members of the PFC are equivalent to trustees and so are ultimately responsible for the fund: it is at PFC meetings that decisions are made about the fund’s investments.
Most funds give control to asset management companies to run the day-to-day operations of the fund, under their instruction. However, the decision to divest is ultimately up to the PFC, and their fund managers are employed to do as they have been instructed by the fund.
That said, a successful divestment commitment often comes first from getting the full council (from both the administering authority and other contributing authorities) to pass a motion in favour of divestment, which the PFC is then encouraged to listen to.
There are a number of key “players” involved in either directly making decisions relating to the fund’s investments, or who have some power in influencing the decisions of those people.
- Members of the Pension Fund Committee.
- The fund’s investment/asset managers will make the day-to-day decisions about investments, on the overall instruction of the PFC.
- In England and Wales, your fund’s LGPS “pool” (see below).
- Local councillors – in particular, your own ward councillors, party group leaders, leader of the council, and the council’s climate/sustainability lead. Relevant councillors in other councils who pay into the fund are also important contacts, especially if your council isn’t the “administering authority”.
- Council staff/officers whose job it is to handle to support councillors.
- UNISON local branches – as the primary union for local authority workers, your local UNISON is a great place to identify allies. Your local PFC may also have representatives from other trade unions, including Unite or GMB.
- “Members” of the scheme – current, former or retired workers whose pensions are invested in the fund. This includes both unionised and non-unionised workers.
- Other contributing employers – your local LGPS fund will usually have a number of other local, public employers that pay into the fund beyond the local councils, such as leisure/sports centres, state schools, students’ unions and the fire service. These employers and their staff (who will also be members of the fund) can help build more support for the call to divest.
- Other climate/fossil free campaign groups that fall within your fund’s area (e.g. XR, Friends of the Earth, youth strikers), as well as any other non-climate community groups that may support your call. Make sure to reach out beyond the usual suspects!
- Your local MP or Metro Mayor (if you have one).
In 2015, “investment pooling” was introduced to LGPS funds in England and Wales only. The Government’s plan was for LGPS funds to pool their assets, in an effort to drive down investment costs through the sharing of resources and economies of scale.
It is now up and running with eight pools in England and Wales:
- Access – Cambridgeshire, East Sussex, Essex, Hampshire, Hertfordshire, Isle of Wight, Kent, Norfolk and Northamptonshire.
- Brunel – Avon, Buckinghamshire, Cornwall, Devon, Dorset, Environment Agency, Gloucestershire, Oxfordshire, Somerset, Wiltshire.
- Border to Coast – Bedfordshire, Cumbria, Durham, East Riding, Lincolnshire, North Yorkshire, South Yorkshire, Surrey, Teesside, Tyne & Wear, Warwickshire.
- London CIV – all 32 London boroughs.
- Local Pensions Partnership (LPP) – Berkshire, Lancashire, London Pension Fund Authority.
- Northern – Greater Manchester, Merseyside, West Yorkshire.
- Wales Pension Partnership – Cardiff and Vale, Clwyd, Dyfed, Gwent, Gwynedd, Powys, Rhondda, Swansea.
- LGPS Central – Cheshire, Derbyshire, Leicestershire, Nottinghamshire, Shropshire, Staffordshire, West Midlands, Worcestershire.
Despite this, the Pension Fund Committee for each individual pension fund will still hold the decision to invest/disinvest in certain things, although the funds that individual pools make available for the councils to invest in can either make this process easier or harder.
Some pools are further along than others in creating fossil-free investment options for local authorities. Many local campaign groups are organising at the pool level and putting pressure on their pension pools to provide greener investment alternatives in order to make the process of divestment easier for LGPS funds.
Further reading and resources
There are a number of resources that may be helpful in improving your understanding of the workings of the Local Government Pension Scheme:
- Local Government Pension Funds – Divest From Carbon Campaign: A UNISON Guide (UNISON/ShareAction) – see pages 5-7 for an outline of how LGPS pensions/governance works.
- The resources page of the UK Divest website contains briefings on shareholder engagement, the financial arguments for divestment, and our latest report on LGPS investments in fossil fuels.
- Fossil Free campaign guide – a step-by-step guide to running a successful divestment campaign. From building a group to winning your demands — learn how to pick a target, plan your strategy, and take action.