The government's review of Local Government Pension Scheme (LGPS) efficiency risks destabilising reforms already underway, industry figures have warned.
The Department for Communities and Local Government (DCLG) parliamentary undersecretary Brandon Lewis announced the consultation at the National Association of Pension Funds (NAPF) Local Authority Conference yesterday (PP Online, 21 May).
Lewis said it will not include predetermined solutions but added he was "not wedded to having 89 funds" and "will not shy away" from merging or pooling funds as part of the drive to cut costs.
His comments will add to an already heated industry row over LGPS collaboration (PP Online, 19 March).
Chartered Institute of Public Finance Accountants pensions panel chairman Bob Summers said introducing a new set of changes at this point could destabilise the LGPS structure.
He said: "It is important funds explore every opportunity in the search for the best value. In light of the financial challenges facing local government many funds are already doing that.
"Mergers are one end of a spectrum of measures which includes removing regulatory barriers to better fund management, developing shared services, collaborative procurement, framework agreements and the emerging collective investment initiatives.
"Success lies in ensuring that decisions are based on the best available data, build on existing initiatives and are achievable within a realistic timeframe.
Summers added: "There is a risk of destabilising the LGPS structure at a critical point in the delivery of the new scheme."
Norfolk Pension Fund head Nicola Mark, who has worked with the Treasury to develop two national procurement frameworks for the LGPS (PP Online, 7 May), said she was concerned by the pace of change.
She said: "We accept the need for change, but why is there such a huge hurry? Is it about nabbing the money for infrastructure? Is it because we have to present figures to the Treasury as savings?
"We have undertaken projects to collaborate but we don't yet know if they will be sustainable.
"We must not be rushed by politics into a position that is bad for the LGPS. I am very alarmed at the timeframe; the minister wants a plan by April 2014. This is the investment of £150bn of public and stakeholder money and we need a lot of time to think it through."
However, others were more welcoming to the consultation.
London Pension Fund Authority (LPFA) chairman Edmund Truell, who has announced plans to merge London borough LGPS funds (PP Online, 28 February), proposed creating five "superpools" and a single oversight body.
He said: "Schemes must hedge against inflation, which added 7% to liabilities in the first quarter of 2013. Using assets as collateral would eat them all up so you need derivatives, which requires expensive expertise."
Truell also said schemes could improve investment performance through co-investment in illiquid assets such as infrastructure.
He added: "Our plan for the minister is to pool funds, from 2014, into five ‘superpools '- perhaps the North, Wales and the South West, the Midlands, the South East and London - under a new body: the Public Pension Funds Authority."
NAPF chief executive Joanne Segars said: "We have seen some good examples of collaboration, but we should ask if more can be done. The minister is right to open a wider debate on what funds can be doing, and to do so with an open mind and a clear call for evidence."
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