Birmingham council leader brands LGPS investment fees ‘a national disgrace’

While I do not believe everything put out by the CPS (sorry Michael) I do think that my pension fund is being ripped off. As are Councils with toxic LOBO loans.

"The leader of the UK’s largest local authority has claimed asset management fees paid by local government pension schemes are “sucking in” money that could be used to offset government spending cuts to vital public services.

Birmingham City Council leader John Clancy said a finding that LGPS funds may have paid out as much as £9bn in fees to fund managers over the last decade, almost double reported figures, was “a national disgrace”.

The claim was made in a report by the Centre for Policy Studies, which also concluded LGPS’s assets had under-performed the major UK and global equity and bond indices over the last decade.

Responding to the report, Clancy called on the West Midlands Local Government Pension Fund to stop using external investment managers.

The scale of fees paid in management costs by WMPF, which were £86.3m in 2014-15 and £74.9m in 2015-16, were unacceptable and that management of the fund should be brought in-house to save money, Clancy said.

He backed a call by the CPS for LGPS funds to move from active investment to passive investing (where funds are invested in benchmark indices rather than actively traded by managers). Active investment incurs expensive fees, Clancy stated, but the switch could save millions of pounds to help fund essential public services.

According to Clancy, the West Midlands scheme has paid £1bn to managers over the past ten years, compared to only £70m estimated to be paid by West Yorkshire Local Government Pension Fund over the same period.

Birmingham City Council expects to have to pay about £125m to WMPF this year, including top-up fees to cover a projected deficit, he highlighted, with the fund “sucking in” money from Birmingham and the six other West Midlands metropolitan councils that could be spent paying for social care and other services.

“The Centre for Policy Studies report is a vindication of what I have been saying for a long time – local government pension schemes across the country and here in the West Midlands are a dysfunctional mess and not fit for purpose.

“There is no need to hire investment managers at all. But the brutal truth is that funds up and down the country have happily spewed out hundreds of millions of pounds to City advisers for no real return whatsoever.

“This is a national disgrace, which is sucking money from local authorities at a time when public services are under threat as never before. If investment managers do not add value to a fund, they should not be paid.”

Are Council pension funds being ripped off? File on 4

On Tuesday evening (and repeated 5pm today) the excellent investigative Radio 4 programme "File on 4" examined whether at the same time that Councils are suffering from massive Government cuts - their pension funds are also being ripped off by fund managers in excessive fees and charges.

There was an interesting consensus of views that they are indeed being ripped off. On the one hand former policy adviser to David Cameron, Michael Johnson, argued that 101 fragmented and inefficient Council funds running the same pension scheme was a "national embarrassment". While from the opposite political corner, UNISON national Officer, Colin Meech, compared the scheme to a bucket full of leaks and holes which constantly needs topping up.

The programme needs to be congratulated for pointing out that contrary to the tabloid stereotype the majority of people in the Council pension scheme, are not the so-called "Town Hall fat cats", but low paid, part-time women. Also unless the scheme becomes more efficient in the future then these low paid workers will pay the price with reduced pension benefits or higher contributions.

My fellow UNISON pension representative, Malcolm Cantello, described how the charging structure is so complex that no-one seems to know how much his pension fund actually pays out. Birmingham Councillor, John Clancy, believes that merged regional "super funds" would not only cut costs but enable them to have the scale to invest in much needed infrastructure projects.

The researcher, Dr Chris Seir, thinks that the actual cost of the Council pension scheme could be more than double, as previously thought, at around £1 billion per year.  Imagine what better use hard pressed Councils could do with that sort of money?

Probably the most controversial statement made (out of many) was a remark by Michael Johnson that suggested the reason why the current government had kicked the question of cutting costs and merging Council pension funds into the long grass was because the fund management industry funds the Conservative Party. I suspect that Michael is now completely off his former boss' Christmas card list.

(picture of annual Gala dinner of National Association Pension Funds inside Liverpool Cathedral paid for by City sponsors. You can download the File on 4 programme here and check out this post from last year on "how we pay for the City")