The vast majority of the money outstanding to those who work and have worked for Government is to be paid as pension. The Government’s pension debts – for its own people – have been estimated in the Whole of Government Accounts (2013) at £1,300,000,000,000 (£1.3tr).
This debt does not sit on the public balance sheet as it is backed by the assets the state owns, which are worth a lot more. We are in no danger of not paying our civil servants!
Nigel Wilson, the CEO of L&G called at the time of the last election as a matter for political debate. It never got to be discussed , beyond the pages of the FT, it is indeed an elephant in the room. Unlike the state pension, the liabilities of which can be managed by messing about with the State Pension Age, the pensions of our police and fire people,our civil servants , teachers and those in the NHS are all paid out of future tax receipts.
And a very good thing too!
The alternative is the Local Government Pension Scheme (LGPS), a disaster in the happening.
The LGPS – the trough from which the pension industry has drunk too long!
The unfunded public sector schemes may not be perfect, but they are at least efficient. A huge number of people are paid a certain income in later life by a very few administrators , a few actuaries and no fund managers or investment consultants at all.
By comparison, the money in the LGPS -set aside to pay those working in and for Local Government is used to pay not just pensions but an army of actuaries, administrators, fund managers and investment consultants – who collectively diminish the fund to a such an extent that there should be a little segment of our council tax “Where the money goes” pie-chart just for them!
The Government is now asking some awkward questions about just what all these people are doing with tax payers money. The questions come in two parts
- Why are you taking so much for yourselves?
- What social purpose is behind how you invest the money?
While the actuaries and investment consultants and fund managers and sisters, cousins and aunts, fight a rearguard action to defend their fees, the Government are pressing ahead getting the money out of funds which have little or no social purpose and into funds which are invested to make sure that we can travel our railways at rapid speeds, drive on roads not blocked by landslips and live in towns not threatened by local rivers.
This form of investment has been branded “infrastructure” and deemed a bad thing by many. The many in question being the people who make about as much money out of those kind of investments as they do from the pensions paid to those without a fund – e.g.nothing at all.
The arguments being deployed by the lawyers representing the vested interests (and the lawyers are a further vested interest) have managed to get Michael Klimes of Professional Pensions to argue the case against the Government moving money into infrastructure using this handy “at a glance” graphic.
This uses a tried and tested journalistic ruse, you make the first bullet point factual and hang on it a couple of spurious conjectures in the hope that people will see this as a factual extension. The second and third bullet points are of course – tosh.
Why member’s interests are not undermined by transitioning to infrastructure
As the Government point out with regards their unfunded pension liabilities, deficits are backed by real assets, things that the Government could sell to pay the pensions if tax receipts fell below the level needed to pay our pensioners.
If an investment in infrastructure fails, the member’s security is not reduced, we’d need the country to fail for that to happen!
The argument in Michael Klimes’ article argues that the Government, the highest legal authority in the land, is being high handed in using its powers to take these assets away from the sisters and cousins and aunts (SCA) without due consultation. An eminent lawyer is appalled that he will not be able to make a large amount of money in this process.
The reason that the Government is just getting on with it, is because the lawyers and the SCA have been filibustering for decades while enjoying a healthy meal at the taxpayer’s table. I am surprised they have appetite for more but clearly their’s is an unassuageable appetite for fees, fees and more fees.
Members have exactly the same security of Government Guarantee, however the assets of LGPS are invested. The question is whether the utility of those assets is enjoyed by the public or the financial services industry. This is public money and should be used for public good.
Conflicts of interest
The second argument (beyond that of supposedly decreased member security) is that if the Government uses the money in the LGPS funds to improve infrastructure it is creating conflicts of interest for itself.
“Under a private sector pension scheme, the trustees are not generally allowed to invest more than 5% of their assets in employer related assets,” Hanratty continues. “What is happening here is the government is investing heavily infrastructure to support the government. For example, you would not let the British Airways Pension Scheme buy a fleet of airlines and then lease them to British Airways.”
This is utter nonsense. The reason we don’t want British Airways investing in British Airways planes , is because of the concentration of risk on the sponsor. Companies like BA can go bust.
But behind LGPS is Local Government and behind Local Government is the Treasury. Ultimately there is no more chance of these pensions not being paid as there is a chance that Britain becomes the next Greece.
Of course pulling the money out of funds and into infrastructure will mean that some of those assets will not be independently controlled, but do we have any idea how they were being controlled, what the investments were achieving, how we were benefiting? We have no idea at all. My interests are best served by not being flooded – being able to drive my car without hitting a pot-hole and being able to get on a train with confidence it will reach its destination on time.
Give us back our money please!
This article is not about the benefit structure of Government pensions- we can deal with liabilities elsewhere, it is about the utter nonsense being used as a smokescreen by part of the pensions industry dependent on BAU at LGPS. Business is not as usual, Government is riding rough shod over the interests of the LGPS SCA and rightly so.
In footballing terms, the current management of LGPS has more in common with FIFA than a well run body and it is time it had its funding taken from its control and put in proper hands.
The proper hands have yet to be determined- and I leave it to proper people to make those determinations. The Government has shown with the PPF (and to a lesser degree- NEST) that it can set up financial management structures that work. Let’s see it happen again.