Sunday, June 21, 2009

Co-mingling and fiddling the LGPS

Sorry folks, but co-mingling is not some sort of new interesting bedroom practice rather it is the (probably) illegal practice by certain Councils of “borrowing” money from their staff pension funds and mixing it up with their reserves. They then put these merged funds on the money markets at a high rate of interest. But only pay the pension fund a small amount of interest earned and then pocket the difference! Some even charge the pension fund an arrangement fee for the privilege of being diddled. I suppose the money was just “resting” in the Council Bank account.

Check out today’s Observer and LocalGov website. The finance director of the LGA admits that practice could be costing staff pension funds “hundreds of millions” of pounds. UNISON believes that this is actually illegal for an employer to borrow from its pension fund. Now to be clear, no-one is benefiting personally from this but for a number of years the Local Government Pension Scheme (LGPS) has been attacked as having “unaffordable deficits”. Yet by ripping off the LGPS to keep down Council tax by co-mingling; by past pension contribution holidays; by unrealistic expectations on life expectancy and investment returns - some (not all) Councils have contributed to such deficits.

The major reason for this is rubbish governance arrangements by many Councils. We need openness, accountablity and transparency in the LGPS. The best way of doing this is to have staff side nominated representatives with full voting rights on pension committees and panels. If you don’t have representation on such committees of those whose money (deferred pay) it belongs to then you will always have such daftness going on. The Government needs to step in and sort the LGPS out properly.

I’ll post my conference speech on Capital Stewardship next (it just failed by one place to be debated on Friday –such is life)


Technology-blog said...

Both employees and employers contribute to the LGPS: employees' contributions are fixed, while employers' contributions vary depending on how much is needed to ensure benefits under the Scheme are properly funded.

The Fund Actuary sets each employer's contribution rate as part of the actuarial valuation of each fund's assets and liabilities, which takes place every three years

John Gray said...

Actually my pension contributions went up over 15% recently – due in part to poor investment performance by the LGPS. Also the unions have accepted “cost sharing” for the future. The scheme can also be varied legally with minimum consultation.

Why should I pay more when members play little or no part in most schemes? “No pension contributions without representation”!