LONDON |
LONDON (Reuters) - London's borough councils need political impetus to reform an illogical pension fund system for their employees which is squandering money in administrative and management costs, the head of one of the capital's largest funds told Reuters.
The idea of pooling London's 34 separate local authority pension schemes to create a single fund with around 30 billion pounds ($47 billion) in assets was pitched to council leaders three months ago as a means of shaving some of the 30 million pounds annual administrative costs.
On Monday a debate will be held by British think-tank Demos between several council leaders and academics on the benefits and drawbacks of such a merger.
"Some people believe small is beautiful, others believe in economies of scale," said Mike Taylor, chief executive of the London Pensions Fund Authority, which manages over 4 billion pounds and is one of the main proponents of the plan.
"We believe that 50 years after the London boroughs were set up it's time to review the arrangements, particularly for the pension funds which seem one of the more illogical arrangements to have 34 funds doing the same thing in London."
The initiative comes at a time when pensions funds around the world are having to adjust to major shifts in demographics as people live longer as well as dwindling asset returns as markets whipsaw in thrall to the current financial and economic crises.
But any change is likely to take some years as well as much effort. Taylor says that at a time of major change in public sector pensions as the recommendations of a government-sponsored review are implemented, he would look at a target date of 2016.
Before a plan can even properly be conceived political consensus needs to be reached by the leaders of London's councils and then a proper cost benefit analysis can be commissioned, says Taylor.
He said leaders are due to get together for a formal summit in September or October to discuss the proposals further but anecdotally they have not yet been endorsed by a majority.
Opponents argue that autonomy over investment decisions for each individual pot of money might be taken away. But Taylor suggests that more needs to be done to persuade local leaders that within a pooled structure there could be several investment options.
He also says that in addition to the administrative and management costs that could be saved with a larger pool of assets, the option of an in-house manager would also be possible enabling greater investment choice and further synergies.
Proponents have also suggested that a pooled pension fund could then invest around 7.5 percent of its assets or around 2 billion pounds into infrastructure funds, which would be a welcome boost to government efforts to raise money for UK infrastructure projects.
The Pensions Protection Fund (PPF), the national lifeboat for struggling pension funds, and the National Association of Pension Funds (NAPF) is hoping to raise 2 billion pounds from 10-12 pension schemes to launch a government-backed infrastructure fund in January 2013.
This has also raised concerns that any pledge towards infrastructure projects might be politically motivated given the UK government's drive to attract funds into the sector.
"Infrastructure is the carrot to combine the fund," said Taylor.
"There are many opportunities for local infrastructure projects provided the investment case remains paramount."
($1=0.6429 pounds)
(Editing by Greg Mahlich)
Source: uk.reuters.com
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