The UK’s populist right-wing Reform party has stepped up its attacks on ESG and net zero investing in the country’s Local Government Pension Scheme (LGPS) as part of a focus on what it describes as government waste.
At a press conference on Monday, Reform deputy leader Richard Tice criticised what he claimed were “egregious” fees and poor performance by funds.
The party only has four MPs, but in local elections held in May it took control of a number of councils and will have representation on committees overseeing up to £100 billion ($134 billion; €115 billion) in pension money.
Tice took aim at LGPS funds’ illiquid climate investments, claiming that “when you dig into these reporting accounts you find that actually there’s more pages devoted to climate change than there is devoted to the performance of the funds”.
“You’ve got the Nature Climate Fund, you’ve got the Climate Opportunities Fund, the New Environmental Opportunities Fund, renewable funds, sustainable funds – however long the list is, this is a meaningful cause of underperformance. Not the only one, but a meaningful one.”
At close to £400 billion, the LGPS is the largest funded pension scheme in the UK and one of the largest in the world. However, management and oversight is split across 86 local funds, which range in size from less than £1 billion to £30 billion.
Successive governments have already taken steps to tackle this fragmentation and funds will be required to pool their money by March 2026.
Tice claimed that a combination of benchmark underperformance and too-high fees results in a drag of between £8 billion to £11 billion a year on the total fund, which necessitates higher contributions from councils.
Reducing this figure would release more money for councils to spend on social care, he said.
He also took aim at asset allocations, claiming that funds should be invested with a 75:25 split between global equity and bond index funds. According to the LGPS Scheme Advisory Board, equities accounted for around 50 percent of investments in 2022-24.
However, Tice was keen for councils to allocate towards social housing investments in their area, suggesting they could aim for up to 10 percent allocations to the segment.
Reform has previously complained about net zero and “woke investments”, with Tice writing to the Parliamentary Contributory Pension Fund this year to complain about its ESG integration.
Industry backlash
Tice’s claims this week provoked a backlash from stakeholders including the UK’s largest union Unison, whose general secretary Christina McAnea said that the sums involved “appear to have been plucked out of the air”.
Similarly, the LGPS Scheme Advisory Board said it “does not recognise” the claims made by Reform, while UKSIF CEO James Alexander said “ill-advised attempts to override this forward-thinking approach could hollow out hard-earned pension pots”.
“Investment decisions should be guided by experts who understand these financial principles, not parties with short-term political agendas,” Alexander added.
Industry body Pensions UK said the LGPS was “one of the most successful in the world”.
Zoe Alexander, its director of policy, said: “Like all significant UK pension schemes, the LGPS takes responsible investment seriously and integrates climate considerations into overall risk management.
“The LGPS also has a strong record of investing in local areas – and we anticipate that the latest government reforms, and the devolution bill, will strengthen this further.”
She noted that the fund has the highest proportion of investments in domestic assets in the UK pension sector.
“Any policy proposing changes to the structure or approach of one of the largest pension funds in the world should be supported by evidence and detailed plans. The duty of LGPS is to look after members’ interests.”