LPFA considers 'unitised' local government pensions
UK - The London Pension Fund Authority, which manages €3bn in assets for local authority pension plans, is investigating the possibility of creating ‘unitised' pension plans for local government schemes which essentially ringfence an employer's asset allocation strategy but create economies of scale in the asset management.
Mike Taylor, chief executive of the LPFA, said his team is currently investigating whether it is possible to adapt the pooled pension arrangements adopted by multinationals and create a some form of unitisation for individual local government-based employers, so they may maintain asset allocation strategies which fit their member profiles but benefit from improved pricing structures within an enlarged local authority fund as well as ESG improvements.
"We have begun looking at investing the plan to offer employers the option of unitising what they invest in," said Taylor. " We run active and closed strategies for different employers, so we are looking at the options for unitisation and the major spin-off benefits if they government were to amalgamate schemes."
He continued: "We could offer a unitised fund which keeps each asset allocation strategy [individually] but we manage the assets collectively. We gain economies of scale and lower fees in administration, as well as ESG advantages. It's similar the actions transnationals would take, but it is not yet available in the local authority sector."
The LPFA manages and administers the assets of London pension schemes on behalf of 73,000 members, but there is still no system in place which would allow UK local government schemes to amalgamate or consolidate further and improve both the fee terms and potential returns they could receive.
Local government pension schemes have also been under renewed scrutiny during the economic crisis as business leaders from the private sector have argued the benefits provided by local government, and therefore the taxpayer, are much higher than the private sector can afford.
Taylor intends to raise the issue of managing local government pension schemes at the NAPF Annual Conference in Manchester later this month, as he is concerned that the public is being misled into believing local government schemes are delivering above-average pension payments to its members.
"The [LPFA] board's interest is on the future of local government pension schemes and the public sectors in general. The reporting on this through the press has been very unfair, suggesting local government pensions are gold-plated. But the average pension we pay out is under £4,000 and only a few are worth over £20,000 a year.
"Unfortunately, with an election coming up next year, there is not a massive amount happening on that front. Unless someone steps in and raises the debate we are in danger of losing good schemes for all sorts of workers," he added.
Taylor suggested the cost of delivering local government pension plans could be tackled in part by reviewing the benefits and terms under which pensions are paid.
He proposes this issue could be dealt with by raising the retirement age, reducing benefits, or by applying a career average scheme to existing benefits - a concept the LPFA supports.
His priority, said Taylor, is to kickstart a proper debate about local government pensions on behalf of the LPFA board, so a constructive dialogue might be achieved on how best to progress for the benefit of all stakeholders in local authority pensions.
LPFA's longevity research has shown its members are living another 2.5 years longer every 10 years, compared with the average of 2 years in every 10 as quoted by actuaries.
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