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'Bizarre' pensions proposals under fire

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Councils have attacked the government’s plans to reform local authority pensions as “bizarre” and criticised the scope of the research underlying them.

The Department for Communities & Local Government is consulting on proposals to cut the fees local government pension scheme (LGPS) funds pay to investment managers, by setting up collective investment vehicles (CIVs).

Through these vehicles, the government argues, LGPS funds could use bulk purchasing power to get better deals on their investments.  

But several authorities used responses to the government’s consultation to voice strong objections to the DCLG’s plans.

Leicestershire CC’s pension fund said the government’s plan to create a CIV through which councils could invest in infrastructure was “bizarre”. Its consultation response said LGPS funds were already able to do this, so there was no need for the proposed CIV.

“It is bizarre that providing greater investment in infrastructure is a secondary objective of the call for evidence,” it said.

Meanwhile, Kent CC’s pension fund criticised the government’s decision to base its proposals on a report that used data from only 18 of the 89 LGPS funds.

It said: “We wonder why such a limited sample has been used when DCLG holds the annual returns from all funds so it has investment manager costs.”

Hymans Robertson, the pensions consultancy firm which wrote the report on which the government’s proposals were based, explained: “This sample is representative of the LGPS by fund size; ie it represents small, medium and large funds in appropriate weightings.”

Several funds opposed the government’s proposal to shift most LGPS investment from active investment, in which funds are composed of assets selected by investment managers, to passive investment, which tracks the movements of stock markets.

Bath & North East Somerset Council’s Avon pension fund said forcing LGPS funds to invest almost entirely in passives could leave them overexposed to market crashes.

It highlighted the collapse of banking shares in 2008 and BP shares during the Gulf oil spill as examples, in which it said passive portfolios “incurred significant capital losses”.

The DCLG argued actively managed assets were not worth the fees managers charged for them. It said the Hymans Robertson report found LGPS funds using active investment achieved similar returns to those using passive investment, on average.

The DCLG is due to publish its response to the concerns in the autumn.

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