While one can only support efforts by local authority pension funds to sally forth into battle on behalf of their members, the class action against RBS smacks somewhat of jumping onto bandwagons. For a start, since RBS is bust and owned mainly by the taxpayer, any successful claim can therefore only be funded from the taxpayer's increasingly emptying wallet. Alternatively, since the taxpayer must, in the long-term, be the guarantor of local authority pensions, any claim which is not successful means shortfalls in the local government pension fund (LGPS) will also have to be made up by the taxpayer. It's a heads you-lose-tails-you-lose situation as far as the public, or the taxpayer, is concerned. The lawyers of course will be the winners. Nice work if you can get it. The pension funds involved with the class action in New York maintain that the banks must take the blame for their collapse through their reckless lending and acquisition strategy. The problem with this argument is that during this period of banking hubris the stock market soared along with investment returns. One might also therefore argue that canny council pension fund managers should have transferred their equities into safer bonds at the height of the boom, thereby being quids in today. Of greater long-term importance is how the LGPS is to be funded when the returns of recent years are unlikely to be repeated. The few private sector final-salary schemes still in existence are having a torrid time, squeezed between actuarial forecasts of ever-increasing life expectancy and collapsing equity returns. The LGPS, with 3.5m members and new regulations introduced only last year to reflect increased funding costs, faces exactly the same challenges. The trouble is that while an improved business environment will eventually enable employers to transfer cash into their pension funds, local authority employers with tight budgets and council tax rises of close to zero will not have that luxury for many years. Rather than engage in expensive litigation, council pension funds might be better arguing they are a special case. Michael Burton, Editor, The MJ
