The Local Government Pension Scheme is what’s called a ‘defined benefit’ pension. The benefits you receive are set out in the rules of the scheme and are determined by a set calculation. This means you have a defined pension promise regardless of the performance of GMPF investments.
Looking after your pension well and being a responsible investor is really important to us. We strive to make decisions and create policies that reflect our commitment to investing in the best interests of all our stakeholders and wider society. We know that many of you are interested in how we do this because poor performance can affect the employers who are part of our Fund, tax payers and the future pension promises of others. This responsibility is known as stewardship.
Last year GMPF was one of the first funds to be approved as a signatory to the Financial Reporting Council’s UK Stewardship Code 2020. This code sets high standards for those investing and looking after money on behalf of UK savers and pensioners. GMPF had to demonstrate how it applied the Stewardship Code’s standards and underwent a rigorous review process that included submitting evidence of its stewardship activities. GMPF was one of only 23 asset owners to successfully complete this process and be approved as a signatory, which is a significant endorsement of its responsible investment and decision making processes.
As we approach a funding level of £30 billion UK pounds, we are pleased to report that our work in this area goes from strength to strength. In November 2021, the 2021 RAAI Leaders List of the 30 most responsible asset allocators ranked GMPF as 35 in the world of most responsible investors. This was out of a group of the top 634 asset allocators across 98 countries with 36 trillion US dollars in assets. We scored an impressive 96 out of a potential 100 to achieve this rating, and we continue to strive to be a top leader in the area of pension fund stewardship.
We aim to ensure low cost, sustainable and responsible pensions.
The Department for Levelling Up, Housing and Communities, formerly MHCLG, regulates your pension with oversight by the Pensions Regulator. The Local Government Pension Scheme Advisory Board advises them. The Scheme Advisory Board was created under Section 7 of the Public Service Pensions Act 2013 to achieve best practices, increase transparency and coordinate technical and standards issues.
On 28 February 2022, the Local Government Pension Scheme Advisory Board issued some advice to pension funds in the light of events in Ukraine and the resultant extent and potential sanctions by the UK government. The Board advised LGPS funds to consider the implications for their investment portfolios and to discuss with their pools and asset managers what action they should prudently take.
GMPF is already doing this. Even before Russia invaded Ukraine, the efforts involved in managing the ESG risks of companies in countries such as Russia were significant - with such markets often trailing in terms of corporate governance, human and worker rights, political stability and environmental concerns.
We believe in activist engagement, but only if we can achieve real-world outcomes alongside meeting our fiduciary obligation to achieve good pension returns. It is often too difficult to engage well with companies in these markets and requires significant effort. This is why GMPF has no direct Russian holdings.
It is clear that Russia has placed itself outside of all international norms. There is very little appetite for anyone to trade with Russia under these circumstances and in face of international sanctions. Therefore, in that context, it is very hard to see how Russian investments are sound financial investments, which while completely ignoring the moral case, which is utterly compelling, is not something we can usually legally take into account when considering our fiduciary duty.
GMPF has no direct Russian holdings, although around 0.2% of GMPF’s investment portfolio is connected to Russian holdings.
GMPF's investment managers have frozen all existing indirect holdings in Russian-domiciled investments, recognising the current lack of market for selling these assets and the fiduciary duty to act in the best interests of our members and the taxpayer.
We note that some funds are using the word divest themselves, but unless and until the current world markets and sanctions change, they will only be able to freeze them.
GMPF will continue to comply with all economic sanctions in force and will keep the matter under active review.