Tuesday, July 10, 2012

"Merging London's Pensions: the Pros and Cons"

Last week I went to a meeting organised by the Centre of London (Demos) in City Hall to debate whether merging the 34 different Local Government Pension Scheme (LGPS) Funds in London made any sense or not.

"It has been argued that London's pension funds could be pooled, and that significant savings could be made from the current £30m cost of administering the 34 funds across London.

A pooled pension fund could then contribute to new infrastructure projects in London.

The event will be chaired by Liz Meek, Chair of Centre for London with speakers Bob Neill, Parliamentary Under-Secretary of State at DCLG, Suhail Rahuja, Chairman of Superannuation Committee for Westminster, and Ravi Govindia, Leader of Wandsworth Council. Dr David Blake, of the Cass Business School, will outline research from the Toronto Institute and on Dutch public sector funds to provide some comparisons".

LGPS minister, Bob Neil MP, could not come so his place was taken by DCLG civil servant, Terry Crossley (who is due to retire in the next week or so).

I thought that Dr Blake did demonstrate that there was a financial benefit from having better governance (by bigger schemes) although I have heard elsewhere that this is not proven. But it does make sense that bigger schemes would be able to afford more expert and specialist advice and get significant economies of scale .

While Councillor Ravi Govindia from Wandsworth spent most of his time attacking the idea that merger would fund new infrastructure projects rather than the concept of merger itself. Yet he did point out that his fund was well run and efficient so he could not see how merger would benefit his scheme and his council tax payers.

Terry Crossley gave the classic British Civil service "yes, but no, but" analysis (I will miss him when he retires) that there could be savings from merger but there could be other ways of reducing costs.

Councillor Suhail Rahuja gave a pretty convincing argument that we need to research further since "to misquote The Hitchhiker's Guide to the Galaxy", the answer to the meaning of life in the LGPS is not 34.  There is no good reason for there being 34 schemes in London. Why not 17 or 7? If people think that small pensions schemes are better then why isn't the massive USS or BT schemes being pressed to be broken up into smaller regional funds?

I did ask a question to the panel why there was no beneficiary representation speaking at this meeting? After all it is workers deferred pay we are talking about?  Which I think was accepted by most of the panel.

Controversial figure Michael Johnson waded into the debate by accusing the financial services industry and vested interests of completely ripping off the LGPS. I don't think this increased his chances of an invite to Terry's retirement party!

Pensions Week reported on the seminar and concluded that merger was "broadly rejected" in favour of some form of shared services. Which I don't think actually happened. I think the consensus was that it was too early to tell and we need more digging.

With hindsight the panel should have not only included beneficiary representation but also a Pension Committee Chair in favour from a London Labour Council. Most Councils in London are Labour Controlled. The idea mooted of pooled infrastructure fund was also a mistake. Even if it makes perfect investment sense it proved divisive with some rather over excited individuals privately attacking the idea as some sort of "socialist plot".

I think we need to look at this merger idea further. Perhaps we don't need to do it, perhaps we do. While merger will be fraught with difficulties, if it saves money and improves investment performance while improving governance. It is worth looking at and considering carefully.

I have seen figures that claim merger of the national LGPS would save £300 million per year.  If this is true then in these times of austerity then these claims should be looked into.

At the end of the meeting Terry Crossley told me that there use to 3,000 different UK Local Authority pension funds. Now there is 101. So there must have been compelling reasons for this huge rationalisation and it proves that merger difficulties must have been overcome.  


Anonymous said...

I overheard a Tory close to Boris Johnson saying a year ago that London LG pensions should be taken away from local councils (and TU accountability) so they could be used to invest in private companies as they see fit - to kick start the economy

John Gray said...

Hi anon

London LG Pensions funds can and do “invest as they see fit” (subject to advice and regulations)in private companies at the moment?

Where is this money coming from? All schemes will already be fully invested in assets? Investments can be redirected but hardly enough in London to "kick start" the economy??

Is he really suggesting "nationalising" Council Pension funds? If so an odd position for a Tory???