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Conservatives' pensions merger plan

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Local government pension funds could be merged under proposals being considered by the Conservatives, LGC has learned.

The party is investigating the scope for “locally led amalgamations” of England and Wales’ 89 funds in a bid to slash the administration costs of the Local Government Pension Scheme (LGPS).

After party leader David Cameron slammed the “apartheid” between public sector final salary schemes and private sector pensions, the move could be interpreted as a positive move to secure council workers’ retirement income.

A party source said that as well as providing economies of scale to cut down on the current combined administration cost of£113m a year, the amalgamations could “reinvest savings into the funds to reduce deficits”.

Some estimates claim the combined funding ‘black hole’ of British local government pension funds could be as high as£35bn.

Administration costs, meanwhile, vary hugely with smaller inner-London authorities paying double the£28 per member average for English funds.

Former Essex County Council treasurer Keith Neale, who sits on the pensions fund forum at the Chartered Institute of Public Finance & Accountancy, said there were undoubtedly economies of scale to be gained by closer working between funds.

“A fund worth around£1bn would probably be quite efficient as it is, but for funds of less than half a billion there could be a lot of scope,” he said.

About half of English and Welsh pension funds had valuations in excess of£1bn in 2007.

Mr Neale said a quicker route to cutting administration costs would be voluntary agreements to share back-office costs between funds that stopped short of mergers.

Roger Brown, managing director of the ICselect consultancy, which advises local government funds, said a network of “four or five” administration services providers would allow funds to benefit from economies of scale without the lengthy legal process mergers would involve.

Ian Greenwood (Lab), West Yorkshire Pension Fund chair, demanded evidence that the cost of merging funds would provide real savings before committing to the idea. “Where we can have efficiency savings with the scheme, we should, though,” he said.

Tony Travers, director of the Greater London Group at the London School of Economics, cautioned that reform of the LGPS’ administration should not be seen as support for the sustainability of final salary pensions.

“People in local government may feel this is a little more optimistic,” he said. “But one doesn’t rule out the other.”

Glyn Jenkins, Unison’s head of pensions, was sceptical of the scope for cutting down administration costs.

“There’s already been a very recent review of the LGPS and there’s no need to do this,” he said.

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