Occasionally an article I publish on here hits a raw nerve and a missive is sent to someone at my company naming me and trying to shame me. Thankfully, my company is familiar with how social media and accepts that staff who care, have a right to voice their opinion as individuals.
Such a complaint was received yesterday for my blog comparing the Local Government Pension Scheme (LGPS) to the monastic system prior to its dissolution. According to one officer of the Scheme, my blog lacked “balance”. The officer is entitled to that view, but it is best made on this blog and not as an attempt to impair my career!
My blog quoted (among others) the views of Alan Higham, Andy Young, Dr Chis Siers and Michael Johnson in calling for further reform of the LGPS, both in its benefit structure and in the arcane governance. Alan and Andy were also speaking on social media , I appended a link to a BBC Radio Four’ Pension Patchwork article which reinforces the point of the blog.
I know the views of Michael Johnson and Chris Sier, they have both blogged on http://www.henrytapper.com. Taken together, the views of these people, plus those of Unison represent a significant body of thought, of which I am the least distinguished limb.
My blog addressed the problem from the perspective of a small North Dorset village called Melbury Abbas which has had its primary road link – the C13- closed for over a year. There simply isn’t enough money in the Council pot and that’s partly because of the cost of the County’s Local Government Pension Scheme. The cost to the village falls on older people who cannot get a bus and on local businesses who struggle to get to customers or even parts of their farms.
Some of the deficit payments that have denuded council funds are necessary because of factors beyond anyone’s control- for instance the fact that people are living longer, but the bulk of the costs are down to the way LGPS works – or as the BBC program pointed out- doesn’t work.
Unlike larger Government pension schemes,- for the firemen, the teachers, the police and the civil service- and unlike the state pension – the Local Government Pension Scheme is backed by funds – it’s know as a funded pension. There are great things that can be done with pension funds; they can invest in infrastructure like the C13 (for instance)- but to do so , we need very large pension schemes.
The LGPS could be – were it one “superfund “capable of doing amazing things, like investing in our failing roads. But it is not one “really big pot”, it’s over a hundred quite big pots that each are managed by separate fund managers, advised on by separate investment consultants, lawyers and actuaries and audited by separate accountants.
Not only does the structure of the LGPS create inefficiencies pay hundreds of intermediaries, it misses the opportunity to really drive down the cost of management of the funds.
In research commissioned by Unison, Chris Sier found that the cost of the fund management commissioned by individual local authority schemes, was very high. He estimated that the hidden costs of this fund management were particularly high, amounting to at least as much again as the costs quoted in quoted fees.
Unison, who bravely admitted that some of the members who were asked to control these costs when sitting on the Governance Boards of these local authority schemes found “their heads hurt”. The hundreds of governance boards, of which Dorset has one, struggle to understand what they are paying. Clearly, in many instances they are paying too much.
This wide body of opinion is in agreement that the LGPS is not working for a whole variety of reasons and is in need of wholesale reform.
My blog over the weekend suggested that the lessons of history (the dissolution of the monasteries) should instruct those in power to reform , rather than risk wholesale destruction.
In Canada, in particular in the State of New Brunswick, attempts are being made to reform their local government pension schemes by introducing risk-sharing (CDC). Elsewhere in the UK pension system (DC workplace pension schemes) rules are being put in place to require those governing our pensions to pay attention to the hidden costs and manage them.
My company does not advise Local Government Pension Schemes, though we advise many of the organisations that use these schemes for their staff. We have a duty of care to these organisations to ensure that LGPS operates more efficiently.
The cost of participating in these schemes- something that our clients often are required to do, prevents them from building houses, providing care to people needing long-term care, prevents them from investing in the services people depend on .
When people who manage the status quo ask me for greater “balance”, I suspect they are asking me to support the status quo. In the case of the complaint we received yesterday, the assumption was that I would remain “balanced” by changing or removing my blog.
But that was what the monks said, as they sold their indulgences, and it didn’t end well for them.
Further reform of LGPS is overdue. As Andy Young pointed out in his tweet we missed the opportunity to make radical reforms to benefits and recent proposals to reduce fund management costs appear to have been kicked into the long grass,
I suspect if LGPS had come under the purlieu of the current pension minister and not another department, it would have been reformed this parliament.
With interest in pensions at an all time high, and with the debate over private pensions exposing the paucity of funding for retirement amongst most of us in the private sector, staying silent on public pensions does not seem balanced. Nor does the inequalities of pension benefits arising from a year at work in the private and public sectors. Nor does the impact of LGPS deficit funding at a time of austerity. Nor does the amount of money coming out of public schemes to pay fees to those in the business of managing pension funds.
For all these reasons, I think it is in the interest of restoring confidence in pensions, that we continue to shine a light on public pensions and in particular LGPS.