Oxfordshire, Buckinghamshire and Berkshire councils are in preliminary talks about merging their pension funds in an attempt to save £2.5m a year, as more local authority schemes club together to reduce costs.
The local authorities are as yet undecided on whether it will be a full merger of the funds or just working more closely together on investments or administration.
A similar collaboration between Cambridgeshire and Northamptonshire councils allowed £750,000 to be invested into their combined scheme. Savings were made from sharing staff, technology and by renegotiating contracts.
If you’re large enough you can push down investment manager fees
Oxfordshire County Council spokesperson Paul Smith said there were possible savings of £2.5m from a full merger.
But he added: “The initial costs of setting up a new merged fund have yet to be determined, so there is currently no estimate of net benefits, or the length of time to recover the set-up costs.
Potential savings could come not only from fund management fees but also higher net returns from opportunities not available to smaller funds, Smith said, adding that lower levels of collaboration on investment could limit potential savings.
Nick Greenwood, pension fund manager at the Royal County of Berkshire Pension Fund, added: “At this stage we have each gone to our respective cabinets who have… given us the authority to initiate discussions with the communities in local governments.””
The benefits to schemes of collaborating come from increased bargaining power, especially in investment management.
"[With] increasing scale should come a stronger negotiation position with suppliers, as well as the simple efficiency of larger scale delivery," said Mark Packham, director at consultancy PwC.
It would be necessary for the Department of Communities and Local Government to support this proposal if the merger were to be realised.
Even if support was given, a detailed business case and implementation plan would need to be presented to the cabinet of each council in March 2014. This means it is unlikely any new body would be operational before 2015 at the earliest.
Barry McKay, a partner at Hymans Robertson, said: “If you’re large enough you can push down investment manager fees." However he acknowledged there are potential downsides involved in moving staff as well as the costs included in implementing the collaboration.
