The Local Government Pension Scheme (LGPS) should not be treated as a "homogenous whole" by the Government, the National Association of Pension Funds (NAPF) has warned.

Regarding the Department for Communities and Local Government's (DCLG) consultation on LGPS funds, the NAPF said that the Government's approach to the consultation was "narrow" as the consultation purely focuses on how costs can be reduced, rather than on asking how LGPS funds can secure liabilities and reduce deficits.

The Government said that significant cost savings can be made by using passive investment strategies and collective investment vehicles (CIV), but the NAPF said although the savings are substantial if they are fully realised, they only represent a "tiny" proportion of the LGPS's £47bn deficit.

Instead, the Government should focus on identifying good and bad performance within the LGPS at a fund level, with a view to bringing poorly-performing funds up to standard through targeted regulatory interventions, the NAPF said.

Joanne Segars, NAPF chief executive, said: "The NAPF supports the Government in its wish to secure a LGPS that delivers good outcomes for its employers, local taxpayers and scheme members.

"But the Government is mistaken in thinking the LGPS can be treated as a homogenous whole when it is comprised of 89 different funds, some of which already perform extremely well.

"A subtler and more intelligent approach than that outlined by the Government is required if we are to ensure funds with good performance are not hamstrung to help those that perform poorly."

The NAPF said that the Government should focus on individual fund performance within the LGPS with regulatory intervention to bring poorly-performing funds up to standard.

And instead of making the use of passive instruments mandatory, a 'comply or explain' approach should be adopted and regularly reviewed by various external parties.

The body also said that investment in one type of CIV should not be mandatory, and that the funds should instead have the flexibility to look at alternative ways of co-investing.

The NAPF said that considering the volume of change currently within the LGPS, the Government should set out a "clear and reasonable" timetable for reform after the General Election in May 2015.

First published 16.07.2014

monique_simpson@wilmington.co.uk