UK Pensions ‘Must Collaborate to Cut Deficits’

The CEO of the London Pensions Fund Authority (LPFA) has issued a rallying cry to the UK’s 101 local government pensions to increase collaboration and eradicate the funds’ combined £47 billion ($70 billion) deficit.

“Seeking an additional increase in local taxes to cover pension fund deficits is not an attractive option.” —Susan Martin, LPFASpeaking yesterday at a Local Government Pension Schemes (LGPS) conference, Susan Martin urged other pensions to follow the lead set by her fund and the Lancashire County Pension Fund. The two organisations are to pool their assets to create a £10 billion asset-liability management partnership.

“Pension funds cannot simply rely on contributions and volatile investment returns as benefit payments continue to increase,” Martin said.

“Local government pension funds and their local authorities are keen to reduce costs and increase returns in an effort to eliminate the joint scheme’s £47 billion deficit,” she added. “Seeking an additional increase in local taxes to cover pension fund deficits is not an attractive option for any politician, local or national.”

While the UK government has proposed enforcing more passive investment in local pension funds, Martin emphasised that “scale and in-house expertise” were the way to go.

Proponents of cost cutting have cited excess charges of more than £1 billion across the LGPS, but Martin said the figure could be much higher once performance fees and transaction charges are factored in.

Citing the £20 billion Railways Pension Scheme’s recent investment strategy overhaul, Martin said “while they had always performed well… what became clear when they began the transformation process was that they were paying far more than they were aware of. I’m sure this is true of us in the LGPS.”

But pooling resources and investing in expertise was a better method of closing the deficit in the long term, she said. Martin hailed “innovative” local authorities that were “thinking more strategically and creating their own opportunities.”

“Partnerships with access to multi-asset classes offer significant advantages to authorities, through economies of scale, access to high levels of expertise and expert management of assets and liabilities,” Martin said.

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