IPE asked three local government pension funds in Denmark, Switzerland and the UK: ‘How do you administer your fund?'

Jeff Houston, assistant director corporate resources at the London Pensions Fund Authority (LPFA), which has invested assets of £3.59bn (€4.5bn)

The London Pensions Fund Authority (LPFA) covers the employees of over 200 not-for-profit employers plus the closed schemes of the extinct Greater London Council - which was abolished in 1986 - and the Inner London Education Authority - which was abolished in 1989. This means that we provide services for some 20,000 active members, 22,000 deferreds and 33,000 pensioners.

There is no common management company for local government schemes. Each of the London boroughs or county councils have their own pension funds and so they do the fund management and investment by themselves or with the help of investment managers.

However, we have been doing local government pension scheme (LGPS) third party administration since 1992. The contracts we have are as a result of open tender processes and apart from ourselves Capita and Liberata also provide admin services to London boroughs on a third party basis.

The outsourcing of administration by pension funds tends to move in phases, with two to three LGPS going out into the market at the same time, which will then be followed by a quiet period. But it is not a particularly prevalent issue and a relatively small market. Out of the 33 administering authorities within London only nine or 10 have outsourced their administration, while outside London it merely amounts to five or six.

We provide third-party administration in order to create economies of scale for the client and to offset our fixed costs. Because London LGPSs tend to be smaller, economies of scale are the main driver behind their wish to outsource. But it could also be because they have problems recruiting a replacement if they lose their pensions manager or similar.

The situation of having around 90 administering authorities across England and Wales could bear examination; however moving to just one administrator as with the teachers' scheme - which is extremely big - would not be popular. The argument is always between providing a local service which people like and getting the economies of scale from being larger. There are advantages and disadvantages both ways and a hybrid solution may even prove to be better where you, for example, amalgamate some of the back office activities but then leave the advice on a local basis.

Nevertheless, because pension administration only plays a very small part of their overall administration it is often not a priority for the councils to outsource it and they are more likely to look a larger departments for outsourcing.

The set-up of the UK local government schemes and administration has been much the same for a significant length of time - the only recent changes have come about because of the creation of unitary authorities in some parts of the county. And there have been no serious discussions to change that.

The most recent one was a paper by the audit commission for which they looked at the cost of pensions administration in London and hinted at bringing some funds together. But in the end nothing came out of that.

Rolf Hubli, chief executive at Pensionskasse Thurgau, which has assets of CHF1.5bn (€943m)

We are a mandatory pension fund for some employees of the Thurgau canton - including local school and pre-school teachers, and the administrative personnel of the fund - while others - such as other school personnel, employees of public entities in the canton and employees of institutions that provide services to the canton - can join the fund voluntarily. At the end of last year we had 9,202 active members and 2,756 pensioners.

National regulations require that every employer with employees for whom it is mandatory to provide a pension must either have its own pension fund or join a collective scheme, which basically means that every company has its own pension fund. Tthis is contradicted by the statistics that show there are 2,663 private and 107 public pension funds while there are many more employers. That shows that consolidation is already under way in the form of collective pension foundations.

Swiss law sets out the minimum level of benefits for occupational old age, bequeathed and disabled provision (BVG). But many pension funds exceed this by offering a so-called Überobligatorium, or further benefits.

All Swiss cantons had made their own pension provisions even before the BVG law came into force in 1985, a popular vote which made them compulsory. And they are likely to keep them.

If there were just one central Swiss pension fund - for all employees - this would automatically raise the question of what benefits would be insured and at what price. For some of the insured this would result in a lower benefits level but it could also mean lower contributions if, for example, benefits were reduced to the BVG minimum level. However, if you made the highest level of benefits in the occupational pensions pillar the benchmark, some of the insured would have to contribute more but they would gain higher benefits.

There simply is no right or wrong way and that is why it can be advantageous to have several pension funds offering a wide range of pension products.

Nevertheless, there are discussions about the merging of some canton funds, including suggestions that some of the cantons' employees such as teachers and other cantonal personnel each have their own pension fund. And indeed such consolidations are underway or have already taken place in quite a few cantons. However, mergers between the pension funds of different cantons are highly unlikely.

But one development that is occurring is regulatory centralisation. Each canton - no matter how small - used to supervise its own pension funds. But in 2006 six cantons in central Switzerland grouped together under one regulator in order to improve efficiency, standardisation and access to know-how and earlier this year six eastern Swiss cantons joined forces under another regulatory authority.

Hasse Jorgensen, CFO at Sampension, the Danish common management company for three pension funds which has invested assets of DKK100bn (€13.4bn)

Several decades ago only civil servants had any kind of pension coverage. But in the 1970s, labour market based schemes emerged that were negotiated on an individual basis between different organisations.

And since the start different local and central government schemes have been grouped together. It was simply logical to have these different groups organised in the same pension entity however there was also the desire to be able to negotiate a specific scheme for each of these groups.

So today Sampension covers around 300,000 different people, most of which are publicly employed in either central government or local government. On top of that there are large groups of other people who are covered with Sampension - like employees in the graphical industry - but also a number of company-wide pension schemes within the area we cover.

All the different schemes are based on labour market agreements between employer and employee organisations such as for example HK, the organisation that covers administrative personnel in Denmark's local governments, businesses and industries. These organisations agree their own pension scheme agreements which we then administer within Sampension. Most of the company pension schemes have been with us for a very long time but they can also change to another provider if they want to, so there is some flexibility. We are also open for new pension schemes to join us.

The main reason for this bundling together of various schemes are economies of scale. Due to the amount of members and assets under management we are able to provide a very flexible and inexpensive administration within the same administration entity. This efficiency also helps us to provide competitive prices.

And it allows us to create a very wide scale of flexibility in our product range which we have as opposed to most other regular pension funds.

There is a choice between many types of products within Sampension from traditional guaranteed products with different levels of coverage to our new lifecycle, more market-rate orientated products to unit link products, which the members can choose from within the boundaries and limits their negotiating organisations have set up.

We have no plans to change this structure. On the contrary, we are constantly working on expanding our services and we are in the process of trying to make our company even more efficient.