Recent analysis of fund management fees paid across the Local Government Pension Schemes (LGPS) has fuelled the efficiency debate.
After the government's call for evidence into the shape of the scheme (PP Online, 21 May), the Financial Times published a study of the variance of fee charges throughout England and Wales' 89 LGPS funds.
The results, compiled by Investor Data Services, appear stark: upper quartile investment management charges were four times as much as in the lower quartile. This, on average, represents an annual difference of £5.5m for a mid-sized fund.
Comparing funds of a similar size shows the same picture: the £2.62bn Staffordshire Pension Fund's fees were almost three times the size of the £2.68bn Devon Pension Fund's over the last nine years. This equates to a difference of more than £3.9m annually.
The Local Pension Fund Authority (LPFA) was quick to back the research as proof of the need to merge LGPS funds.
LPFA chairman Edi Truell says: "This further supports our assertion that creating scheme ‘superpools' of up to £50bn would result in markedly reduced fees for LGPS funds.
"In addition to delivering fee reductions, pooled funds would also have the resource to invest in a wider range of asset classes, as well as to pursue more complex liability driven investment strategies, further driving returns."
However, LGPS experts warn against emphasising pounds and pence comparison.
Sackers solicitor Ralph McClelland says "useful and meaningful comparisons" are difficult to achieve when considering charges, due to variance in service and prices.
He explains: "You need to be sensitive to the different sizes of the funds involved, the liability profile and what the councils are attempting to achieve.
"Rather than bottom line, you need to think about value for money in these services."
Devon County Council, which administers the Devon Pension Fund, gave a similar response to the research.
A spokesman said: "It is difficult to compare the fees paid by different authorities based on their size alone as they will vary according to the investment strategy. However, we strive to find the best value for money while achieving the best rates of return for our funds."
McClelland highlights de-risking strategies, which may carry a higher premium and seemingly yield lower returns, but are beneficial to the scheme by reducing exposure to risk.
He adds: "I would tie this into [Parliamentary under-secretary of state for the Department for Communities and Local Government] Brandon Lewis's call for more information about the LGPS as a whole. You need as much detail as possible to make analyses like this useful."
330 Consulting director and owner David Crum says the "fundamentally flawed" analysis has come at "an inappropriate time".
He explains: "It takes no account of what the individual funds are trying to do with their investment strategies. There's no depth in here as to why a fund would pay more than another fund for investment management functions."
Crum says a "cynical person" may argue the apparent support for fund mergers "smacks of political interference".
He says: "You've got a government that has had a difficult time with its economic policy, and the temptation may be to get its hands on the hundreds of billions of assets in LGPS in a short time frame and deploy some of them in infrastructure projects before the next election."
Crum says there is "definitely a case" for funds to evaluate "what they spend and how they spend it", but that more focus should be placed on existing framework agreements, such as those led by Norfolk Pension Fund head Nicola Mark, as opposed to full mergers.
He adds: "This debate is an incredibly unhelpful distraction at a time when there's a lot going on in the LGPS."
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