Government moving forward with pension fund consolidation

Published on Friday, 18 October 2013 12:36
Written by Sinead Fynes Black

Advice from financial markets experts will be used to identify vital administrative savings in the management of town hall pensions.

Professional advice from financial markets experts will be used to identify vital administrative savings in the management of town hall pensions, as part of this government's drive for more open policy making, Local Government Minister Brandon Lewis announced today (18 October 2013).

Figures published for the local government pension scheme show there is scope for reforms to improve performance and reduce investment management and administration overheads, which cost taxpayers £508 million in England and Wales. These range from £28 to over £300 per scheme member across 89 separately managed funds.

The government will now commission an external organisation, such as a bank, actuarial firm or think tank, to develop specific advice on the potential for new savings and greater public accountability through increased pension fund collaboration. The work will also consider whether other funded public service pension schemes can benefit from a more collaborative approach.

The successful organisation will be expected to have experience of pension fund management and to provide a robust cost benefit analysis on when the potential savings can be delivered across 89 different local government pension scheme fund administrators. Proposals will be presented to both DCLG and Cabinet Office ministers for consideration.

Today's announcement follows a call for evidence into ways of improving investment returns and reducing funding deficits within the local government pension scheme by increasing fund co-operation, transparency and accountability to taxpayers.

The commissioned work will focus on 3 options:

  • a single national investment fund vehicle
  • a small number of closely aligned combined investment vehicles
  • or merging the 89 funds into a few larger funds

Local Government Minister Brandon Lewis said:

"This government is taking action to reduce the massive and unsustainable cost of state sector pensions with higher contributions from well-paid staff. Already for the first time in recent memory, the cost of town hall pensions to taxpayers is now falling.

"But there is more that can be done, which is why today I am launching a process to get professional advice and analysis from financial markets experts on ways to reduce the £508 million investment management and administration bill through greater joint working, potential fund mergers or pooled investments and increased data transparency that will make the pension scheme more accountable to its taxpayers."

The Department for Communities and Local Government is 1 of the first in Whitehall to take up the Cabinet Office's 'Contestable Policy Fund', which was set up to enable ministers to commission policy advice from beyond Whitehall.

Minister for the Cabinet Office, Francis Maude, said:

"Ministers need the best possible policy advice to ensure better public services and value for taxpayers. Because Whitehall does not have a monopoly on policy making expertise we want open policy making to become the default in government.

"The Contestable Policy Fund allows ministers to draw directly on thinking, evidence and insight from experts beyond Whitehall."

Source: DCLG

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