Norfolk Pension Fund has rejected Local Government Pension Scheme merger proposals, saying they could harm fund services and trustee stewardship – but the London Pensions Fund Authority and unions have backed the move.
Brandon Lewis, minister for the Department for Communities and Local Government, announced a call for evidence from the pensions industry on a possible LGPS merger, at the National Association of Pension Funds’ local authority conference last week.
The government was "not wedded" to keeping 89 separate funds in England and Wales, he told delegates. Consolidation of local government schemes has been a long-running discussion in the sector, with its proponents saying economies of scale will improve investment management.
In response, Nicola Mark, head of the £2.2bn Norfolk Pension Fund, said she had been lobbied repeatedly over the years from people in the industry who said they had the answer to funding problems in the sector.
But she stressed schemes had a statutory duty of care to members and cautioned that one enormous scheme could be “unrecognisable” and would “not solve the long-term issues in the LGPS”.
Warning against focusing on consolidating investment and administration, Mark said: “There is a huge ring of activity in the middle. Everybody forgets about that bit.”
LGPS funds were already busy dealing with the Hutton reforms and deficit burdens, and the plans lacked research, she added.
The scheme head stressed a small move in investment strategy could have huge funding implications, and that instability in the financial climate made the success of a merger uncertain. “We have to be mindful of backing the wrong horse,” she warned.
But Edmund Truell, chair of the £4.2bn LPFA, said funds needed economies of scale in pooling administration services and assets, stressing the latter could result in a saving of £120m to £200m a year.
Liabilities among local government schemes had risen by 15 per cent in 2012, he added, cautioning that if schemes were unable to hedge inflation, the situation could be “really, really serious”.
“You need the pros on your side to manage the risk. Big pools require big-scale liability management,” he told delegates.
Colin Meech, national officer at Unison, said a merger would be an “absolutely wonderful thing”, arguing that the larger the fund, the better the stewardship of members’ savings.
Out of 800 fund management contracts, six firms controlled 40 per cent of the assets, so the assets were already merged, but within commercial entities charging “exorbitant rates”, he added.
“The object of the pension system is to pay the benefits and the best way to pay the benefits is to have economies of scale,” Meech said.
