Personal Pension  

‘Inefficient pension scheme puts 5.4m at risk’

In a 25-page paper, written by the independent pensions consultant on behalf of think tank the Centre for Policy Studies, Mr Johnson called LGPS “woefully inefficient” and said it needed drastic action to secure its future viability for its millions of investors.

The report, the Local Government Pension Scheme: Opportunity Knocks, stated that LGPS has total assets of more than £200bn, 5.4m members and more than 7000 participating employers.

However commenting on its total of 101 funds, Mr Johnson said these were characterised by “excessive cost and lax governance”.

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The paper also claimed that some of the funds were now so under-funded that they were “beyond the point of no return”.

To help protect the pensions of 5.4m people – based on Office for National Statistics figures,approximately 14.2 per cent of the 38m working population in the UK – the paper put forward a three-step process to address the viability of the scheme.

The first step would be to improve transparency and adopt widespread standardisation, which Mr Johnson said were “essential prerequisites for the digitisation required to centralise all LGPS administration”.

The paper also proposed redesigning the investment process with emphasis on investment in passive rather than actively managed funds.

Mr Johnson said that investment management should be brought in-house, claiming that the current reliance on external management was “an extraordinary exhibition of profligacy and missed opportunity”.

Third he proposed facilitating fund mergers. He said that each step contained the common theme of cutting costs by harnessing economies of scale and expected that the project would take five years.

He added that, based on evidence drawn from some of the world’s most efficient public pension funds, a restructured LGPS should be able to cut costs by at least £860m a year.

Report’s key proposals

Cut £860m of wasted costs each year.

Improve transparency.

Implement standardisation.

Redesign the investment process with focus on passive funds.

Facilitate fund mergers to cut duplication.

Source: Opportunity Knocks report, 2013.

Adviser View

Mel Kenny, principal of London-based Radcliffe & Newlands, said: “These revelations are quite disturbing and it is surprising they have only come out now. Mr Johnson’s proposals, or a version of them, are most welcome.”