Local government pension funds 'waste millions on excessive fees'

Many of the 89 funds that make up the Local Government Pension Scheme could be wasting millions in taxpayers' money by paying excessive fees to fund managers, according to reports.

Data compiled by Birmingham councillor John Clancy show spending on investment costs last year varied from zero to 1.14 per cent of assets. He added that anything above 0.4 per cent would be "absolutely dreadful".

The councillor's figures, published in FTfm, shows the Waltham Forest pension fund spent £7.5m, or 1.14 per cent of its assets, on investment costs, while the Swansea pension fund spent £11.6m (0.84 per cent) and the Shropshire fund spent £10.6m (0.79 per cent).  

A spokesperson for Waltham Forest Council told LGE: "We introduced a new investment strategy in 2011 to address the inherited deficit in the pension fund, which meant only 60 per cent of future liabilities were funded at that time. This strategy means we are using alternatives alongside equities to achieve a stronger return, but the fees are higher.

"Our fund managers are outperforming their targets and while the fees are higher than the previous year, the overall fund value has increased by £58.2m, covering the increase in fees 25 times over."

But FTfm's analysis showed funds paying higher fees did not necessarily offer better performance. The £765m Hammersmith & Fulham fund spent £4.9m in fees and achieved a 6.4 per cent return last year, while the £775m Enfield fund achieved the same return spending just £1.3m.

David Blake, professor of pension economics at London's Cass Business School, told the newspaper that local authority pension funds should be able to negotiate much lower fees.

"Council taxpayers who underwrite these costs are getting a very bad deal, indirectly paying extortionate fees to the fund managers of those schemes," he added.

Meanwhile, Michael Johnson, a research fellow at think tank the Centre for Policy Studies, described the whole governance framework for the LGPS as "laughable".

Edmund Truell, chairman of the London Pension Fund Authority, said investment costs are "far too high" across local government.

Kieran Quinn, chairman of the Greater Manchester Pension Fund, which spent £12.9m or just 0.1 per cent of assets on fees last year, said it is an issue of "basic governance".

"If somebody is paying excessive money for failure then it is absolutely right that both the people receiving the cheques and the people paying the cheques need to be challenged," he said.