There were times at yesterdays DB Strategic Investment Forum when I thought I’d gone through the pension’s looking glass.
Delegates were speaking about the difficulties of being in surplus and nostalgically yearning for the days when the only thing that mattered was accelerating returns on funds to reduce deficits. In truth, delegates at this event, mainly from the LGPS but also in charge of corporate DB plans were generally in a good place.
The Pensions Regulator came to explain to delegates the revised DB funding code but his talk on low dependency schemes slightly missed the mark. The question for most of the funds in the room was how to maintain the surplus in manageable proportions and the general answer was to reduce the cost of participation to LGPS employers.
The Pensions Regulator will soon have to find an alternative to the “deficit reduction plan” as schemes pass future valuations with no deficit to plan for. And in this environment, insurance, which one delegate described as a “value destroyer”, was an unwelcome distraction. Despite this , delegates need to puzzle out the meaning of one headline published during the day.
Confusingly Aviva, the insurer, have secured the benefits of bus-workers on the Wirral in the Merseyside Pension Scheme. These work for Arriva the bus company and will now have the security of a pension secured by the insurer rather than the LGPS. Members may ask what additional security they get for the deal as their LGPS pension is effectively guaranteed by Government, but this means Arriva have immunised themselves against the possibility of further cash calls from LGPS.
I have to admit to being baffled by the deal which looks even more peculiar than the agonisations over success that some delegates demonstrated!
What was a lot more real was the commitment of many of the speakers and delegates to improve the efficiency of occupational DB schemes and in particular the LGPS. Consolidation, consolidation, consolidation was the call of the moderator of the pre-lunch roundtable . Everyone seemed pretty happy to carry on just as things were, as we watched the waves lap to the bonnie banks of Loch Lomond.
It was left to Dr Chris Sier to deliver a speech on value for money which I hope to post in a later blog. Chris has not been well and had to deliver his speech sitting down. It was 30 minutes of magic as he explained how consultants could create efficiency in the procurement of fund management services by knowing the prices available to other schemes. Managers in the room looked worried, delegates looked on with appreciation and perhaps apprehension for their next meeting with their consultants
We wish Chris a recovery.
The threat of big Government
And from outside the room , the fierce voice of Andrew Young commenting with Calvinistic zeal
The LGPS need to know they are a sovereign wealth fund not Local Government funds. The benefits are statutory so don’t depend on the funds.
It is a quirk of history.
We have given up on poor law rules about local control and time to do that on pensions.
The good news is that we now have an LGPS well on its way to becoming a national asset. The bad news for Local Government is that Big Government knows that only too well.
Its totally totally baffling as to why any LGPS would seek to offload liabilities to an insurer (as one of the delegates call them, “value destroyers”).
Does the local authority that actually legally guarantees all those (fully funded) pensions understand that their administrator just transferred away c£30 – £40m of expected very low-risk profit to Aviva (note to self – buy Aviva shares!)? Is the scheme administrator so unsure of the financial standing of the Merseyside local authorities, that it considers its lower risk to transfer the obligation and the assets to a commercial insurer? If not, then what does the administrator think it is getting for the £30 – £40m value transfer? Risk protection…?
I didn’t realise that these local authorities were so awash with cash they could afford to do that so willy nilly?
I suspect behind this actually is the disdain with which many LGPS schemes view commercial businesses, continually tapping them for unnecessary contributions, and that the relationship was so busted that the employer were happy to cut off the tap, agreeing to the insurer transfer.