A day in London, Part 2.

Much of the afternoon of my trip to London on Wednesday was absorbed by a ‘Question and Answer’ event held under the impressive portals of the Central Hall in Westminster. The Government has proposed some radical changes in the way that Local Authority Pension Funds are managed, and the aim was to shed light on the progress being made.

This is an arcane subject and I will not dwell on the issues in any detail. Suffice it to say that in insisting on reform the Government seems to have two big ideas, plus one major prejudice.

The first idea is that a good deal of money could be saved were the funds to be ‘pooled’ into larger units by combining with others.   The Suffolk Fund currently amounts to around £2.5 bn. and we are aiming to form an alliance with nearby authorities that will produce a pool of £35 bn.

Whether or not costs will actually be saved by this complex exercise is unproven.  If one takes the not inconsiderable up-front costs of effecting the reorganisation, and understands that  likely savings will only be realised several years in the future, it is not hard to see that the whole exercise is unlikely to offer positive value.

The second idea is that some of the billions currently sitting in the pension funds could usefully be pillaged in order to pay for much needed infrastructure investment across the country.

Here the government really seems to have got hold of the wrong end of the stick.  There is no shortage of funds looking for investment opportunities in infrastructure.   Indeed, the Suffolk Fund already has exposure to an international infrastructure fund.  If the Government brings forward the right sort of opportunities (that actually produce an income stream representing an acceptable return for our pensioners) Local Authority funds will be falling over themselves to invest.  There is a suspicion however that these sorts of projects are not what the Government has in mind.

Then we come to the prejudice.  For all the talk of Devolution, there is no doubt that by and large Whitehall holds local authority councillors in contempt.    This is well illustrated by the Government’s clear intention to remove the right of elected Pension Fund Committees to appoint their own investment managers in consultation with their professional advisers.  In future, in the words of one public servant on the panel, this task will be carried out by a committee comprising apparatchiks such as himself, whom he rather inadvisably described as ‘more intelligent’.

Of course, given that the audience was largely made up by elected members and investment managers, this issue generated some excitement.  In the overall scheme of things, apart from the transparent insult to elected members, the change will make little difference to fund performance.  What really matters here is asset allocation which will remain the remit of the individual Pension Fund Committee. 

But the big issue is this: council pension fund Committees meet in public.  Anyone can come along and see decision making in action. I have real concerns about the scope for corruption when a group of unelected officers and City ‘experts’, meeting in secret, wield considerable power over decisions about the management of what is ultimately residents’ money.