"The success of large funds in the private sector, such as the Wellcome Trust, shows the way."
Jon Moynihan, Executive Chairman, PA Consulting Group
Financial Times8 February 2012
Letter to the editor
We were pleased to see Mark Packham’s letter (February 7) giving evidence that rebuts Brian Strutton’s concern (Letters, February 3) that the merger of Local Government Pension Scheme funds would not save money. Mr Strutton also suggests moral hazard, were weak and strong LGPS funds to be merged. The objective is to harness efficiencies of scale; there are a number of ways of achieving this without disadvantaging the members of the healthier funds. This includes investment pooling (rather than fund mergers), which could be achieved by ringfencing (segregating) each fund’s liabilities and also the legal rights each fund has to a share of the assets – just as with a mutual fund or unit trust. The Pensions Trust, for example, does this in looking after the pension funds of some 4,300 charities and other not-for-profit organisations.
The major gains from consolidation are to be found in the purchase of third-party services such as investment management. The “request to quote” process is hugely inefficient and needs legislative change. The asset management of smaller council funds does often come with much higher fees than a larger fund would be able to negotiate. Consolidating all administrative and procurement activities, and other costs, for these funds can save very large amounts of money as well as leading to more efficient investment.
In the case of the LGPS funds, small is far from beautiful, and the system is broken. Consolidation will not solve all the system’s problems but it will make a significant contribution. The success of large funds in the private sector, such as the Wellcome Trust, shows the way. We believe there is pressure building from all sides of the political spectrum, including trade unions, to resolve this mess. Now is the time to establish a commission, independent of politics and the financial services industry, to review the LGPS structure: its remit should exclude any review of scheme benefits, which are already the subject of ongoing negotiations.
Centre for Policy Studies
Cllr. Peter Jones
Leader, East Sussex Country Council
Cllr. Stephen Greenhalgh
Leader, Hammersmith and Fulham Council
Executive Chairman, PA Consulting Group
Professors Andrew Clare and David Blake
Cass Business School
You can read Jon and the group's orignial letter here.