The Grenfell tower still stands burnt out on Kensington’s deprived boundaries. Yesterday it was announced that the tower would be pulled down. A more important to those who live with family and friends dead from the incident is that there is not enough to compensate them, either in re-housing or in cash to meet their needs.
So it is good news that Kensington Borough Council is going to stop paying contributions into its overly funded pension scheme and divert the £9m saved into a fund for Grenfell victims. Kensington has already brought its pension funding down from the 21% that is the national average for funding of Local Government Pension Funds to 7.5% which it pays now
The London local authority pension fund’s investment committee on Tuesday voted to lower its contribution rate from 7.5 per cent now to zero between April 1 2025 and March 31 2026, after members decided that the scheme’s funding level of 207 per cent meant the money would be better spent elsewhere.
Kensington Borough has not much to be proud about its dealings with Grenfell’s victims and £9m is not enough to compensate victims for their losses but it is an act of common sense which should be praised. We should not, as their consultants are saying, wait until the end of the three year valuation cycle, there should be no bureaucracy standing in the way of an opportunity to make better what has happened.
Although the pension fund itself is not releasing any of its 100% surplus, it has the decency not to continue funding the success it has created over the years. Quentin Marshall, chair of the £2bn pension fund, which has outperformed its peers over the past decade, said:
“This is money that is so clearly superfluous to our need to pay pensions that when faced with either having to find resources from elsewhere or doing this, in our judgment this is a better option.”
Kensington and Chelsea, which provides services to both the wealthiest parts of the UK and neighbourhoods with significant deprivation, is the only town hall pension fund with a funding level of over 200 per cent.
It has the lowest employer contribution rate of England and Wales’s 86 local authority pension funds, and has delivered the best performance of any UK local authority fund over the past decade, at 10.8 per cent, according to shareholder advisory Pirc.
The decision not to overfund their pension is only for a year and it will look again next year. I have read a lot of criticism for the investment philosophy of Kensington , I hope that it will be able to show that a successful strategy can, in 2026, use its surplus for social good.
There are few boroughs in this country where social deprivation exists alongside stunning wealth, this should not be a poor borough and in its pension scheme it has the meanings to return to the council’s coffers money that can continue to ease the social problems that exist.
If we start thinking of pensions as a means of social good, which undoubtedly are, then we can put behind us the notion that they need to de-risk by dis-investing.
Well done Mary McDougall for publishing this story. I would disagree with the FT only in its repeated assertion that pressure to release contribution cashflow is
after a big improvement in funding levels, driven by a rise in corporate and government borrowing costs.
the investment of LGPS funds has for decades been contrary to the de-risking strategy which has served private pension schemes. LGPS funds reported their assets at 2023 as follows
The aggregated fund level at LGPS is now reckoned to be £391 bn. The long-term driver that pays the pensions of millions is investment, the short term advantage brought by yields on Government and Corporate Bonds may impact accounting measures of funding cover of liabilities but no more.
Surpluses are ephemeral, as Keating and Clacher recently wrote for this blog in its analysis of long term funding..
This analysis challenges the widely held narrative that scheme surpluses are large enough, if made freely available, to make a material contribution to the investment problem. We do not believe they are.
By contrast, abandoning the pervasive culture of derisking and encouraging all schemes to invest fully in a diversified and productive manner would make the kind of difference that the Treasury is looking to achieve.
Kensington’s pension scheme has made the kind of difference that not just the Treasury but we who fund the Treasury should be pleased by. May we see more such action in 2026.
