LGC Investment supplement - March 2011
In one of the most keenly anticipated publications of recent years, Lord Hutton has finally set out a framework for the future of public sector pensions. The increase in the normal pension age was widely expected, as was the move away from final salary schemes towards payments based on average salaries over the course of a career.
But the full implications of the package, and how it will be implemented in practice, have led to fevered debate across the investment community.
The latest issue of LGC Investment rounds up the latest response and analysis, and assesses whether the Hutton reforms will win the approval of government, unions and employees. And, just as importantly, do they go far enough to satisfy the public momentum for change?
Contributors in this issue discuss the particular challenges facing local government funds in terms of sustainability, diversification and the transformation of the policy landscape.
Ian Greenwood, chair of the West Yorkshire Pension Fund, argues that things are not as bleak as many newspapers would have it. The way liabilities are calculated exaggerates the scale of the problem, he says, and long-term cashflow projections should be taken into account – and serious questions asked about actuarial life expectancy assumptions.
The increasing integration of health and social care is just one of the major policy changes shaping the environment in which funds operate. John Wood, head of financial and commercial services at Staffordshire CC, examines the consequences both for his own fund and the long-term sustainability of the local government scheme as a whole.
Everyone knows a more varied mix of assets means less volatility in funding levels, but true diversification isn’t easy. Hymans Robertson partner John Hastings looks at some of the challenges funds face in balancing their portfolios, and asks whether the Yale model holds lessons for local authority fund managers.
Finally, in a piece on emerging markets, Julian Thompson of AXA IM examines the dynamic between growth and inflation in countries such as China. What impact does it have on investors, and how do emerging market fund managers go about picking the right stocks in the right regions to mitigate the risk of inflation?
As ever, plenty of food for thought.
Kerry Lorimer, supplement editor