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Two Scottish local authority pension funds are preparing to merge legacy transport schemes in an attempt to efficiently manage an eventual run-off.

Strathclyde Pension Fund – part of Scotland’s Local Government Pension Scheme (LGPS) – has proposed merging its £206.9m (€230m) No.3 Fund section with the £100.1m Aberdeen City Council Transport Fund, part of the North East Scotland Pension Fund (NESPF).

Both funds cater for employees of FirstGroup – a private company that operates bus services – in Glasgow and Aberdeen. UK bus services were privatised in the 1980s but pension arrangements remained with the LGPS.

In its latest annual report, the Strathclyde fund – which manages £21.3bn in total for current and former council workers in the Glasgow area – said the No.3 Fund was “well past its natural growth phase and starting to enter run-off”.

In the 12 months to the end of March 2018, the No.3 Fund paid out £7.8m in benefits while taking in only £1.7m in contributions from its single sponsoring employer and its diminishing number of active members.

FirstGroup bus

Credit: Les Chatfield

A FirstGroup bus in Glasgow

Similarly, the Aberdeen City Council Transport Fund was also cashflow negative, according to its latest annual report. In the 2017-18 financial year it paid out £4.1m and received contributions of £2.4m.

At a meeting in December, the committee overseeing the Strathclyde Pension Fund said FirstGroup had expressed a preference for an insurance buy-in for the No.3 Fund as an exit strategy. The committee rejected this “as it was not clear that there would be any net benefit to Strathclyde Pension Fund”.

However, a spokeswoman for Aberdeen City Council told IPE the NESPF was still considering options for an insurance buy-in once the merger was complete.

The deal is currently subject to agreement from the NESPF’s oversight committee and Scottish ministers. A spokesman for Glasgow City Council said the merger was slated to complete “some time later this year”.

If the merger goes through, it will mark just the second time a private sector company has consolidated schemes within the LGPS.

In late 2017, FirstGroup transferred two schemes with a combined £700m in assets from the LGPS funds for West Yorkshire and South Yorkshire to the Greater Manchester Pension Fund, creating a £1bn transport scheme.

Scotland’s LGPS funds are currently subject to a consultation regarding future options for consolidation – although Strathclyde has argued against pursuing a similar approach to asset pooling as has been applied to LGPS funds in England and Wales.

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  • FirstGroup bus

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