UK – Actuaries are aiding some UK local authority pension funds in postponing the cost of funding deficits into the future, a report by the Pensions Institute has alleged.
Although the Cass Business School's research centre did not name individual actuarial consultancies or Local Government Pension Schemes (LGPS) in its report examining what it deemed "fundamental flaws" in the 34 local authority funds active in London, it claimed that valuations would often be based on assumptions "that help […] keep down short-term funding costs".
The report, 'An Evaluation of Investment Governance in London Local Government Pension Schemes', added that the assumptions did not fit with the longer-term funding requirements of funds.
"This suggests that actuaries might be supporting a trend whereby schemes postpone the recognition of liabilities and costs into the future."
Commissioned and funded by the London Pensions Fund Authority following a debate on the proposed merger of the capital's pension schemes, the report by the Institute's director David Blake and senior visiting fellow Debbie Harrison said the capital's funds "suffered from a lack of a strong overarching governance framework", and that it was unclear to what extent the Department for Communities and Local Government acted as a regulator.
It continued that the elected councillors in charge of investment-related decisions did not challenge underperforming managers in a "robust manner".
"The underlying problem here is that, in many cases, there appears to be no clear focus on the investment objectives of the fund as a whole, which is a primary function of good investment governance," it said.
Examining more closely the role of actuarial advisers, the Pensions Institute alleged a "dependence" on the advice offered and also noted that decisions on addressing deficits were being postponed.
"There is also clear evidence that some schemes are not sticking to their recovery plan, with several recovery periods extended to the maximum permitted in the 2010 valuation," it said. "This simply transfers costs into the future."
The report, having recommended that individual funds disclose how much of the locally raised tax is required each year to address deficits, added: "The London LGPSs in aggregate represent a ticking time-bomb for London council taxpayers, and very likely for national taxpayers, too.
"We recognise the sensitivity of the debate about reform, which is why we suggest that a full benchmarking study based on an agreed definition of investment governance – as recommended by the Hutton report – is required."