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Investment returns must not be compromised

The announcement that chancellor George Osborne would like to see Local Government Pension Scheme (LGPS) investments pooled on a regional basis has provoked mixed reactions, writes Andrew Burns.

The chancellor's announcements at the Conservative Party conference that councils will be able to keep 100% of business rates and that he would like to see Local Government Pension Scheme (LGPS) investments pooled on a regional basis has provoked mixed reactions.

Most welcome localisation of business rates, granting civic leaders greater control over their own destiny and the ability to enjoy the fruits of stimulating economic growth and job creation.

However, there are more questions about regional pooling of LGPS funds especially from fellow treasurers and fund managers.

The Spending Review and Autumn Statement announcements in November and the current consultation on LGPS pooling will hopefully make things clearer.

The rationale for regional British Wealth Funds is that they will save hundreds of millions in investment costs and enable billions to be invested in regional infrastructure.

There are further costs to be saved from running pension scheme investments more efficiently, including through pooling.

It also makes sense to explore ways of making it easier and less costly for LGPS funds to invest in infrastructure.

The primary purpose of the LGPS is the payment of current and future pensions of local government staff and not the investment in any particular asset class.

Unlike all other large public sector pension schemes such as teachers, health and civil service (whose future liabilities will be subsidised from current taxation), local government is alone in holding real assets with which to pay its pensioners.

We need to ensure that local government pension fund investment returns are not compromised by thoughts of compulsory investment in local or regional infrastructure, from which the returns may be less certain or sub-optimal.

All investments with pensioners' contributions must be of ‘investment grade', on viable proposals with achievable returns and never vanity projects that cannot attract market investment.

Andrew Burns is immediate past president of the Society of County Treasurers

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