Government moving forward with pension fund consolidation
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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 responses from this process are currently being analysed by the department working closely with the Local Government Association and the Shadow Advisory Board with a view to developing options for ministers to consider later in the year.
The commissioned work will focus on 3 possible 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.
In 2010, the government commissioned Lord Hutton to chair the Independent Public Service Pensions Commission. The purpose of the commission was to review public service pensions and to make recommendations on how they could be made sustainable and affordable in the long term, while being fair to both taxpayers and public sector workers. Lord Hutton’s final report was published on 10 March 2011. Among its recommendations, the report made clear that the benefits of co-operative working between local government pension scheme funds and achieving administration efficiencies more generally should investigated further.
- the cost of the local government pension scheme to employers (i.e. taxpayers) is currently around £6 billion a year, compared to £1.5 million in 1997
- local government pension scheme expenditure on benefits in 2011 to 2012 was £7.5 billion, compared with £6.7 billion in 2010 to 2011, an increase of 12%
- the market value of the funds at end of March 2012 was £148 billion; this represents an increase of 4% on March 2011 and an increase of 52% on March 2009
- there were just under 1.6 million employees in the local government pension scheme at the end of March 2012
The government is also keen to achieve a higher level of accountability to local taxpayers including through an improvement in the availability of transparent and comparable data.
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% four to £148 billion.
The deadline for applications is the 21 October 2013. More details of the contract can be found at contracts finder.
See details of the government’s call for evidence.
The Contestable Policy Fund was announced in the Civil Service Reform Plan. The Cabinet Office will act as a secretariat to the process and support departments to evaluate the effectiveness of the approach and its value for money. The fund will be overseen by ministers and the process will be underpinned by clear contracts - setting out criteria to ensure that the policy being developed is done so in the best public interest and that it does not favour any bias of the provider.
See more information on civil service reform.
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