LGPS pension funds labelled as inefficient

RESTRUCTURING the Local Government Pension Scheme (LGPS) could save taxpayers nearly £1bn a year, the Centre for Policy Studies think tank claims.

In a report out today pensions analyst Michael Johnson says the LGPS, which is the largest funded pension scheme in the UK, is “woefully inefficient”.

It adds that while the scheme has total assets of over £200bn and some 5.2m members, it is made of “101 opaque, predominately sub-scale, inefficient funds, with excessive costs and lax governance”.

Johnson estimates that changes such as improving transparency, adopting widespread standardisation, switching from paper to digital administration and merging funds would cut costs by at least £860m a year.

“All 101 funds are underfunded: the average funding ratio for the 89 English and Welsh funds was 77 per cent on the last reported valuation date (31 March 2010), and 94 per cent for the 11 Scottish funds (31 March 2011),” the report claims.

“Some funds are now so under-funded that they are consuming their assets to meet pensions in payment: they are beyond the point of no return, in a death spiral, heading to an unfunded status.”

Johnson points out anomalies between fund administration costs throughout the country. They range from £13.70 a member in Nottinghamshire to £139.40 for Durham members.

Similarly, investment management costs start at £7.60 per member in West Yorkshire but cost City members £317.30.

Johnson says: “Costs are controllable, whereas investment performance, by and large, is not. This necessitates structural change and could help secure the future viability of the LGPS.”