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.