Collaboration is already a prominent feature of the Local Goverment Pension Scheme
Turkeys don’t vote for Christmas. It will be interesting therefore to see which companies reply to local government minister Brandon Lewis’ invitation last week to tender for advice on his drive to encourage greater collaboration between council pension funds.
After all, private consultancies and asset managers have traditionally benefited from the diversified nature of the local government pension scheme, which would be threatened by merger of the fund, the minister’s apparent preference.
However a conference held in London last week shows that Lewis will have his work cut out pushing through this particular reform, the next details of which are expected in the New Year. This gathering of council funds showed that barely anybody in the LGPS, be they employers or unions seem to think that the idea is a good one.
The conference took place on the day that Lewis’ Communities and Local Government department published new figures that show the scheme heading in the right direction. According to the statistics for 2011-12, English councils spent £353m on fund management costs and another £118m on other administration overheads.
During the same period, the funds’ investment income grew by 13% from £2.7bn to £3.04bn. This improved performance more than made up for a £1.54bn drop in contributions during the same year, which resulted from the contraction in council workforces as the government’s cuts started to bite.
Brian Strutton, national secretary for public services at the GMB union, argued at the Local Government Pension Forum event that the figures undermined the case for the kind of radical structural change Lewis seems keen on. “It ain’t broke: ministers don’t need to fix it.”
To back this argument, he cited figures in the report showing that fees equate to around 0.3% of the approximately £148bn of assets under management, which he noted is “significantly cheaper than a tracker fund.”
Strutton, who is a member of the new national LGPS advisory board, concluded: “There isn’t a cost problem in the local government pension scheme.”
And it’s not as if merger is the only option with many councils already clubbing together on collaborative procurement frameworks.
Nicola Mark, head of the Norfolk pension fund, said that the joint framework being developed by her authority had cut procurement timescales from 12 months to 3-4 weeks, and costs from £50,000 per contract to a “few thousand”.
Mark estimated that if each of the nearly 100 council funds across England and Wales used such a framework, savings of £10m per annum could be achieved. “There’s been a real sharpening of pencils by suppliers in the market place which we did not expect,” she said.
Chris Bilsland, the quaintly titled chamberlain of the City of London Corporation, told the conference that two-thirds of the capital’s councils had signed up to a common investment framework, while the remainder were examining the idea. He predicted that the pan-London framework would be “well on its way” by Christmas.
The idea of greater collaboration between funds is also backed by AXA Investment Management in a report published in the run up to the close of the CLG consultation. This argues about the risk of ‘group think’ resulting from the concentration of decision making in fewer hands.
Jeff Huston, head of pensions at the Local Government Association, said: “I’m cross that ministers are making everybody spend time on a fairly irrelevant issue.”
However Brian Roberts, director of resources at Leicestershire County Council, urged delegates to take heed of the wider agenda across the public sector to deliver greater efficiency.
“I don’t think this is the biggest issue that we face, however need to make a formal commitment to move further down this road. I don’t think structural change is required but without that commitment we are vulnerable - doing nothing is not an option.”
Judging from last week’s event though, it is clear that council pension funds are not sitting back and waiting for Whitehall edicts.