If it ain’t broke, don’t fix it, says principal accountant Tom Morrison


“We might seem a bit smug,” Morrison admits, after rating his scheme’s governance as excellent in our survey, but the £2bn North Yorkshire pension fund can justifiably claim to be an example of good governance.

Independent review has been a critical part of maintaining high governance standards. The scheme has appointed an independent observer, who gives the scheme an annual health check.

In numbers

£2bn - assets under management

31,000 - active membership

At the moment they are within the top quartile of local government schemes. The point of introducing independent oversight was to learn from their experience working with other local government and corporate schemes.

The professional observer provides an annual report setting out developments in the industry, and recommends improvements.

More recently the fund underwent an independent review with Aon Hewitt, which was “very complimentary” but also raised areas for improvement.

With all this positive feedback, Morrison wonders what could be gained from collaborating with other schemes. He says he is not averse to change but does not want North Yorkshire to lose its advantages. As part of its response to the government’s call for evidence on possible mergers last year, the North Yorkshire scheme prepared a document looking at the cost per member, either including or excluding manager fees.

They set out the LGPS schemes on a graph to see whether larger funds could actually offer greater efficiency in terms of cost per member. The results were rather surprising.

Once they got above a certain fairly small size all of the funds were of similar efficiency

“Broadly speaking it seemed that it didn’t really matter how big the funds were – once they got above a certain fairly small size all of the funds were of similar efficiency,” says Morrison.

Some funds had unusually high costs for other reasons, but in most of the very small funds the cost was significantly higher. At £2bn the North Yorkshire fund certainly does not fall within the category of tiny funds.

Therefore on this analysis, increasing the number of members would not necessarily provide improved economies of scale. Morrison also fears that his scheme might be forced to change its successful investment strategy to meet the practicalities associated with merging.

“A couple of the high-performing funds that we’ve invested in are closed to new investments,” he says.

We’d wonder why we were moving from a good place to one that’s much less rosy

“Another LGPS fund joining us wouldn’t be able to invest in the funds that we’re invested in, and if we had to extract ourselves from these funds which were particularly strong in terms of performance, then we’d wonder why we were moving from a good place to one that’s much less rosy.”

Morrison likes the idea of collective investment vehicles, but he would want to approach it as he would any other investment opportunity – by looking at the pros and cons in relation to a scheme’s characteristics.

This article is part of a special report into local government pension schemes, produced in association with Aviva Investors