Four-fifths of local government pension scheme funds have seen the cost of administration and investment management rise since 2011, by as much as 169%, LGC analysis reveals.
Our analysis of the Department for Communities & Local Government’s latest dataset shows 72 of 89 local government pension scheme funds have increased their administration costs and the amount they pay to managers to invest their money.
A fifth – 16 funds – cut their costs, with cuts ranging from 1% to 43%. Comparable data was not available for one fund: Windsor and Maidenhead.
The reductions coincided with Brandon Lewis’ time as minister with responsibility for local authority pensions, from 2012 until July this year. During that time Mr Lewis repeatedly criticised councils for spending on active fund managers.
A DCLG-commissioned report by Hymans Robertson, published in December 2013, claimed council funds could cut their £790m annual spend on fund management fees by £660m by greater use of passive investment management, and greater collaboration among funds.
Increases varied wildly. Swansea’s pension fund’s costs increased the most, by 169% over the period, with its 2013-2014 costs of £12.6m representing 0.99% of its 2013 fund value (£1.3bn).
Waltham Forest’s costs rose by 146%, Cheshire’s by 122% and Devon’s by 107%.
Our analysis shows that between 2011-12 and 2013-14, Lewisham’s pension fund cut its costs by 43%, from £4m to £2.3m, or 0.27% of its 2013 fund value.
The West Midlands Passenger Transport Authority’s fund, which was worth £449m in April 2013, cut its costs by 40% over the period.
Durham and Haringey’s funds both reduced their spend by 37% over the period, while Wiltshire’s fund cut costs by 30% and West Midlands by 24%.
As most LGPS funds have not yet published their 2013-14 annual reports, it is not possible to compare the funds’ investment performance with their spend on investment managers for that year.
However, the figures show that the five funds with the highest increases in their fund management and administration spending between 2011 and 2014 all saw their deficits increase over the valuation period 2010-13.
Four of these five of these funds also saw their funding ratios – their liabilities versus their assets – improve or remain static. This means these funds achieved high enough returns on their investments to match or beat the growth in their deficits.
Of the five pension funds that reduced their fund management and administration costs the most since 2011, four (Lewisham, West Midlands Passenger Transport Authority, Haringey and Wiltshire) saw their deficits increase over 2010-13. Four funds – Lewisham, Wiltshire, Haringey and West Midlands Passenger Transport Authority – saw their funding ratios reduce, by 4%, 8.2% and 13% respectively.
The data does not demonstrate causality between higher spending on investment management and administration and investment performance, but does establish some correlation between the two factors.
Please note - this article was amended on 10 November to correct a mistake in DCLG’s dataset, which listed Worcestershire’s costs as Hertfordshire’s and vice versa.