I was interested to read therefore, just a day after returning from holiday, that it is George Osborne's declared intention to abolish local authority pension funds and pool them into six National Wealth Funds each worth around £25bn. It is interesting that the Chancellor has chosen to make the announcement now since a consultation on the future of local authority pension funds is currently underway and does not close until later in the year. It seems that once again therefore we are witnessing the normal pattern of a faux government consultation taking place when a decision has in fact actually already been taken.
But this is not really the thing that is vexing me about the announcement. It seems that the intention of central government is to encourage the use of some of these funds, which, remember, represent the pension pots of our public servants, for investment in 'infrastructure'.
The Pension Fund Committee recently went to London for a training day and we met some of our fund managers. One of these was a company that specialises in global infrastructure investment. We were very impressed by their approach. This was because their principal message to us was that only infrastructure projects that give an investment return equal to or, preferably, higher than other investment vehicles would be considered by them. To be eligible a project had to enjoy the prospects of good positive cash flow in politically safe parts of the world.
While the UK is probably a safe enough place, I am not sure that the infrastructure projects that our Government has in mind will benefit from the same positive financial characteristics. In fact, I am afraid that all this really amounts to is a form of deferred borrowing for which the tax payer will pick up the tab in years to come. ( The pensioner will be unaffected since being a defined benefit scheme he or she is entitled to their pension in any event.)
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