Government seeks advice beyond Whitehall on pension fund consolidation

Local government minister Brandon Lewis has called for financial markets experts to help find savings in the management of local government pension funds, as part of a drive to consolidate the 89 separate funds.

Lewis said that the government will ask a bank, actuarial firm, think tank or other external institution, to give advice on the potential for cost savings and greater public accountability through increased pension fund collaboration. The use of outside expertise is under the Contestable Policy Fund, which enables ministers to commission policy advice from beyond Whitehall. Cabinet Office minister Francis Maude said: “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.”

Three options for consolidation are expected to be considered: a single national investment fund vehicle; a small number of closely aligned combined investment vehicles; or merging the 89 funds into fewer, large funds. 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 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 announcement follows the publication of figures showing wide variations in the overheads paid in England and Wales for local authority pensions, ranging from £28 per member to over £300 per member. According to the Hutton Report, 2011, on public service pensions, the cost of local government pensions rose from £1.5 billion a year in 1997 to £6 billion a year in 2010. Asset managers earned £353 million from local government pension funds in England in 2011 to 2012. This was a 12% increase on the previous year. In the same period the market value of investments held by pension schemes only increased by 4% to £148 billion.