Pension Finance Initiative?‏

There is no secret that to satisfy those that seek to make a profit from public services the Con Dems will rip up the Warwick agreement and attack public sector pensions. The business lobby and wet behind the ears Tory ministers make a common mistake in lumping all public sector schemes together.

The LGPS is a different case to most other public sector schemes. It is a real scheme with real assets and despite the misguided notion that it is massively in deficit (and therefore unsustainable) the scheme is in fact well funded and very much a victim of short term actuarial assessments. The scheme though faces some unprecedented risks.

Firstly: As more scheme pensioners live longer new entrants to the scheme help to top up the investment pot. But with a projected 725,000 public sector job losses, and a substantial portion of these will no doubt fall on local government, the net contributions will fall. No new employees. No new contributions.

Secondly: Employers are facing huge budget cuts. They pay a set percentage of the overall wage bill to fund pension contributions so this will be ripe for attack as ‘unsustainable’. This could force a break on the deal that there would be shared future rises in contributions between employers and employees. Councils and Government will seek a position where any unmet costs will come out of employees pockets.

Thirdly: Outsourcing also creates huge problems for the funds. Smaller outsourcing to third sector organisations could create a multiplicity of smaller employers that are simply high risk from a pension perspective. Bigger companies don’t like and have often refused to give parent company guarantees to fund contributions. So do we fight for admission of these employers knowing they pose a risk to the scheme or concede on a major issue of our members terms and conditions?

Fourthly: A double dip recession risks wiping billions of the value of pension funds across Europe and that will put at risk the future of the schemes.

So what should a Pension Fund Initiative look like?

We need to make a clear case for the benefits of the LGPS. The schemes are major investors in both UK and overseas equities and bonds. Risking the schemes means a further risk for the markets.

We need to also capture the pension fund capital for the benefit of the members and public services. The Greater Manchester Scheme for example is sitting on over £10 billion of public / pensioners money yet recent announcements across the North West of England show cancellation after cancellation of major investment schemes such as new bus stations, BSF construction projects and new office accommodation and civic buildings.

If we can harness even a small proportion of scheme investment into local schemes we start to square the circle. It becomes less a sitting duck for Eric Pickles mob to attack if the scheme is part of the financially solution for local council investment and regeneration plans.

It goes without saying that these types of funding opportunities should not be about simply co-mingling funds and ripping off the pension schemes. It has to be about getting a realistic return on the investment and about recognising that investments should not simply be about short term quick hit ‘yields’ to the fund managers. Longer term more equitable investment should be the way forward. And it is recycling the funds to work for the public and provide jobs and growth in local economies that should ultimate benefit all our members.

All schemes need to agree an Investment Strategy. We need to make it our mission that those investment strategies include localised public sector investment routes. That could be a far stronger defence and a route to longer term valuations of the schemes, which would be the real key to securing its long term future.

We need a Pension Fund Initiative for public sector investment not PFI as we know it.

Anna Rose