Gatemore Capital Management, which advises smaller pension schemes on investment decisions, said the measures proposed by the former pensions minister were aiding the government and could ultimately increase the schemes’ risk.
Ms Altmann told FT Adviser in January she wanted the government to encourage defined benefit (DB) pension schemes to consolidate so they can take advantage of economies of scale.
Last December figures published by the Pensions and Lifetime Savings Association (PLSA) showed smaller DB schemes (those with less than 5,000 members) had almost double the running costs of larger schemes, at £868 per member compared with £479 per member at their larger counterparts.
Ms Altmann also suggested further consolidation could allow pension assets to be used for investment in infrastructure which, in turn, could boost growth in areas such as social housing.
Gatemore, however, said the comments were “at best, misguided and, at worst, self-serving”.
Mark Hodgson, UK managing director of the firm, said: “If one took a very cynical view of these statements from the government and Ros Altmann we would say they stink of self-interest.
“The reality is that consolidation is not going to work for the vast majority of DB schemes as it will reduce the universe of investment opportunities and may fail to reduce costs.
“The statements made show a complete ignorance of how DB schemes work.”
David Brooks of pensions consultancy Broadstone, told FTAdviser last February infrastructure was ill-fitted to DB schemes because it was uncorrelated to liabilities.
He described the asset class as "pie in the sky".
The government had published a green paper on 20 February 2017, in which it outlined a series of proposals for managing DB schemes, including consolidating them into a 'super fund' to lower the costs of servicing them, and allowing struggling businesses to sever the link to minimum annual increases based on the retail price index.
But Ms Altmann said the measures did not go far enough.
Gatemore, meanwhile, believes there has been a “concerted effort” by governments to use UK pension fund money for its own ends.
It based this on the pension freedoms, which generated a tax take from people withdrawing their pension money and paying tax on everything but the first 25 per cent, which is tax free.
Besides, they said, infrastructure projects should be funded by the government, not pension funds.
“With pension funds discounting liabilities using bond yields, a move to infrastructure from bonds actually increases risk,” Mr Hodgson said.
“Whilst there may be cashflow benefits, unless the actuarial profession shifts its stance this could heap more pressure on weak sponsors.”
He added trustees should be considering “a wide array of investment opportunities, and look for the best risk-adjusted returns which may or may not be UK infrastructure”.
Ms Altmann said pension consolidation would help schemes cut down on cost, especially administrative and investment management costs.
But Gatemore argued the cost of consolidation, such as legal and other upfront merger costs, may not dilute on-going fixed costs for the majority of schemes and may not be offset over the medium-term.
This was particularly true for smaller schemes with assets under £500m, it said.
In contrast, the firms believes one of the biggest issues facing pension funds was the size of the largest players, which “restricts their ability to deliver returns”.
“Consolidation will not help schemes to diversify their investment universe - by becoming larger the investment universe shrinks, rather than grows,” the firm stated.
“In addition, a few large investors, chasing a few large infrastructure projects tends to bid down yields,” it added.
William Burrows, retirement director at Better Retirement, said: “One the one hand it makes sense for DB schemes to pool their resources to benefit from economies of scale and to access larger investment opportunities but one the other hand, it makes sense for schemes to keep their independence and tailor the benefits for scheme members.”
He said the ‘elephant in the room’ was trust, which was what often prompted members to try to transfer out.
“Rather than look for large scale consolidation, it might be better to look at ways at restoring trust in DB pensions,” Mr Burrows said.
carmen.reichman@ft.com
