LOCAL GOVERNMENT PENSION SCHEME – RECENT DEVELOPMENTS
- Purpose of Report
To advise Members of Dumfries and Galloway Council Pensions Sub Committee and Pension Board on recent developments within the Local Government Pension Scheme.
2.Recommendations
Membersare asked tonote:-
2.1 the possible implications on the client status of the Pension Fund under the proposed Markets in Financial Instruments Directive, paragraphs 3.1 to 3.5;and
2.2 the budget statement regarding pooled investments in England and Wales, paragraphs 3.6 to 3.7.
3.Considerations
Markets in Financial Instruments Directive
3.1The Markets in Financial Instruments Directive (MiFID) is a European Union law that provides harmonised regulation for investment services across the 31 member states of the European Economic Area. MiFID requires asset managers to categorise clients as "eligible counterparties", professional clients or retail clients (these have increasing levels of protection). Clear procedures must be in place to categorise clients and assess their suitability for each type of investment product.
3.2Under current rules asset managers are allowed to automatically treat local authority clients as professional clients.However it is understood that under proposed revised rules, MiFID II, due to come into force in January 2017, local authorities will be defaulted to retail client status, with the opportunity to elect for professional client status.
3.3As a retail client there may be a restriction on the asset managers and consultants willing to provide services. Those managers willing to provide services may offer a restricted range of investment products, and due to additional compliance and reporting requirements those products could cost more. Investments currently held outwith those available to retail clients may require to be sold.
3.4To electfor professional status a client will have to demonstrate to each manager used that it meets the qualitative and quantitative criteria required for that manager. Although the actual criteria will not be published until 2016 it is expected that the managers will require the client to demonstrate that it has the requisite experience, expertise and knowledge to be able to make its own investment decisions.
3.5Discussions will be held with the Pension Fund’scurrent asset managers to identify their qualitative and quantitative criteria requirements for professional status, and steps will be taken to ensure that where possible this criteria can be met.It is currently anticipated that the Pension Fund will be in a position to meet the criteria to allow for election to professional statuswhen required.
Local Government Pension Scheme Pooled Investments (England &
Wales)
3.6The budget statement in July 2015 contained the following announcement:
“The government will work with Local Government Pension Scheme administering authorities to ensure that they pool investments to significantly reduce costs, while maintaining overall investment performance. The government will invite local authorities to come forward with their own proposals to meet common criteria for delivering savings. A consultation to be published later this year will set out those detailed criteria as well as backstop legislation which will ensure that those administering authorities that do not come forward with sufficiently ambitious proposals are required to pool investments”
3.7Currently this announcement only applies to the scheme in England & Wales asregulations for the scheme in Scotland are a devolved matter. However it is felt that Members should be made aware of the position and of any future developments that may impact on the scheme in Scotland.
4.Governance Assurance
This is a procedural report and did not require consultation..
5.Impact Assessment
As this report does not propose a change in policy/strategy/plan/project, it is not necessary to complete an Impact Assessment.
Author
NAME / DESIGNATION / CONTACT DETAILSAndrew Ewart / Treasury/Insurance Officer / Tel: 030 33 33 3000
Approved by
NAME / DESIGNATIONPaul Garrett / Head of Finance & Procurement