London’s 34 separate pension schemes for 32 boroughs, the City of London Corporation and the London Pensions Fund Authority (LPFA), could be merged into a single £30 billion fund under proposals currently being considered.
The superfund could save administration costs by pooling assets, and politicians have suggested it could invest up to 7.5% of assets in local infrastructure projects. According to press reports, the concept was put to London council leaders at a private meeting and there was a commitment made to explore the options for the creation of a London Pensions Mutual, as a pan- London investment fund.
The Confederation for British Industry (CBI) has welcomed the idea, and CBI chief policy director, Katja Hall, said: “These discussions are a welcome move, as pooling local government pension funds would not just reduce administrative costs it would also inject some much-needed investment into Britain’s ageing infrastructure, which is crying out for capital. Pension funds are natural investors in infrastructure and will want to invest in projects that are designed to give returns, so we now need to see other public sector funds coming forward in this way.”
At present, infrastructure allocations are relatively low at UK pension funds, but Chancellor George Osborne has called for greater investment in UK infrastructure and there are plans to develop a UK infrastructure fund for pension funds. However, there are fears that pension funds could be accused of “pork barrel” politics if they invest in local projects.
Not everyone agrees that larger pension funds bring benefits. At last year’s NAPF local authority conference, Strathclyde Pension Fund head of pensions, Richard McIndoe, said that merging the 11 Scottish local authority funds would not necessarily improve performance, commenting that the governance complexity of running a very large fund should not be underestimated, and that the best investment strategies had limited capacity.