UK public authorities forced to ring fence pensions
UK - Local authorities will no longer be able to borrow money from public sector pension funds and will be forced to ring fence assets in separate bank accounts.
Changes to the Local Government Pension Scheme (Management and Investment of Funds) Regulations 2009 will outlaw administering authorities from plundering pension funds for cash; something which has been illegal in the private sector since 2007.
The amended legislation will also ensure pension fund assets are kept separate from general council funds, although this change will not be effective until April 2011 to allow authorities to bring their administration processes up to date.
The Department for Communities and Local Government (CLG) said separate bank accounts would "provide added transparency and a clearer audit and accountancy trail of pension fund transactions".
However, public sector union Unison, which has long been campaigning for the Local Government Pensions Scheme (LGPS) regulations to be brought into line with the European Directives governing occupational schemes, said pension funds had already lost out on millions of pounds through uncompetitive interest rates on loans to administering authorities.
Describing the regulatory changes as "far from perfect", the union said: "According to our analysis of LGPS accounts, in the last financial year 63 councils borrowed a total of £2.75bn (€3.12bn) at interest rates equivalent to 0.33%, this returned a paltry £9m in return to the funds. Commercial rates of interest would have seen a return of £140m."
Unison believes the LGPS, which is responsible for approximately 3.5 million members' pensions across the UK, still runs contrary to European law.
"Unison believes that the current governance and investment regulations of the LGPS still sit outside of European and UK law, particularly the requirements of Directive 2003/41/EC on the Activities and Supervision of Institutions for Occupational Retirement Provision (The IORP Directive)," the union said.
The issue of ring fencing local authority pension fund assets surfaced after it was found local authorities had invested in the collapsed Icelandic banks, yet steps had been taken in some cases to separate pension fund and other local authority monies.
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