Ministers could force Isle of Wight pension fund to merge with Hampshire pension fund after councillors rejected a government deadline to say which pool it wants to join, councillors have been warned.

Earlier this year, the government decided to effectively disband two of the eight Local Government Pension Scheme pools – Access and Brunel – that invest the assets of council pension funds.

Their member funds were given until 30 September to tell ministers which alternative pool they wanted to join.

Isle of Wight pension fund – the smallest in England and Wales, and currently a member of Access – made an in principle decision to join LGPS Central in July.

However, a pension committee meeting on 3 September agreed “there is no unanimity with the pension fund committee about joining another other pool, and the committee would like to explore more options before committing £840m to another pool”.

A subsequent meeting of full council on 17 September rejected a motion that supported the expression of interest in joining Central and would have backed the fund reporting ‘in principle’ decision to government by the deadline of 30 September.

Steve Harrison, strategic manager, pensions, at Isle of Wight Council, told the meeting analysis

“showed LGPS Central is better from both the point of view of one off and ongoing costs, and also, crucially, from an investment performance viewpoint as well”.

He warned that delaying a decision

“may threaten securing our place with that preferred partner”.

He added the

“government could also intervene to direct the Isle of Wight pension fund to join a pool if we don’t make a decision, and that may not be our preferred pool”.

Mr Harrison noted the Pension Schemes Bill would give ministers powers to force pension funds to merge.  He added:

“For example, we could be forced to merge with Hampshire, and in that case we just become one of many employers within a much bigger fund and we’d have no say on some of the policies and setting a local investment approach.”

Some councillors raised concerns that the pension committee had not been given information it had requested to make a decision, while others supported the track record of the consultants who examined the options, and warned that not meeting the 30 September deadline risked the fund losing control of its own future.

In a statement, Isle of Wight Council said the decision

“does not represent a rejection for the need for pooling in principle, nor of LGPS Central or any investment pools. The Isle of Wight Council has already submitted an expression of interest in joining LGPS Central, and that position remains unchanged.”

It said councillors

“expressed a desire for greater clarity and assurance before committing to a final decision,” and: “The council will continue to engage constructively with LGPS Central and our stakeholders to ensure the best outcomes for scheme members, employers, and the wider community.”

It added that the decision on 17 September

“taken was solely in relation to the specific recommendations available at the time of the meeting”.

The Ministry of Housing, Communities & Local Government confirmed the pension fund did not submit its decision in principle by the 30 September deadline, and it was engaging with pension fund officials about this.