‘Best value’ to hit smaller local authorities’ fun
Starting this month UK local authorities have a duty to obtain ‘best value’ (BV) in their provision of services including pension funds and will be required to demonstrate they are following this approach by undertaking fundamental reviews over a five-year period.
In each of the five years of the programme, every local authority has to select one of its services an carry out a fundamental review of it which will include looking at whether how and why that service is being provided, examine the quality of the service itself and compare performance with others.
“Over the last three years we have conducted fundamental reviews of our services, says Mike Woodall, chief pensions officer at the Wolverhampton-based West Midlands pension fund. “What will happen now is that we’ll have to demonstrate BV by undertaking fundamental reviews over a five-year period.”
In terms of administration, Woodall believes that BV represents a challenge that will force pension funds to make sure that they have asked their customers about the services provided and find out whether they are happy with them or any changes should be made.
“And it will also be a financial challenge, especially for the smaller funds,” he says. Small local authorities, in particular the London boroughs, will find it more difficult to demonstrate BV due to their high unit costs. “Those funds don’t have the benefits of a economy of scale,” he says. While the unit costs for the West Midlands pension fund, with assets of £5.1bn, is around £17 per head, for some small funds this can increase up to £50. “With that range of unit costs it seems very difficult to justify those of £50 to achieve BV.”
The London Pension Fund authority (LPFA) is working on a BV performance plan to provide a clear focus on quality of service provision. “ We are converting what we had before into this new format,” says Peter Scales, LPFA’s chief executive. “On the investment side comparing performance results could be a problem.” He adds: “These results may depend on asset structures which are peculiar to specific liabilities, so there will be a lack of comparison on the same basis.”
Although it might represent an obstacle for those authorities which don’t have the specialist areas needed to improve the quality of their services, pension funds in general have welcomed BV. Paula Garrido