London Mayor | Pension360

The Case Against London Mayor’s Pension Proposal

London Mayor Boris Johnson wants to merge the country’s 39,000 public sector pension plans into one scheme, which would invest in building and updating the UK’s roads, airports, railroads and other infrastructure.

Yesterday, one of the UK’s largest pension funds, the London Pensions Fund Authority (LPFA), backed the idea.

But Sean O’Grady, economics editor of the Independent, offered a counter-point recently in his column. The bottom line, he says: “Sensible pension fund managers do not send their money where politicians tell them to.” From the column:

What most sensible pension fund managers do not do is send their cash to where politicians tell them to. If they do invest in the public sector, via PFI schemes, they do so via specialist companies and private equity vehicles who have worked out how to make money out of running prisons or trains. They do not do so directly.

There are good reasons for this. Let us take a few examples from history, “investment opportunities” presented as safe, prudent and lucrative ventures that successive governments poured taxpayers money into. The Millennium Dome; The Humber Bridge; Concorde; the NHS IT project; all vastly over budget, and an utter waste of money.

Or the Advanced Passenger Train and its unique “tilt” mechanism; cost £150m and never carried a single fare. Any and every block of 1960s high-rise flats that has since had to be dynamited, though the local authorities who built them are still paying off the debt. Nuclear power stations that promised electricity that would be too cheap to bother metering. Not to mention Boris’ glass testicle, by which I mean City Hall, as it has been renamed with cruel cockney humour.

Now of course there are worthy public projects that can earn a return for investors. The point is that the best people to decide on whether to invest your hard earned cash into such schemes are not the politicians who would like to get some votes off the back of them, but the investment managers we appoint to look after our cash. Private or public sector, would you really lend Boris Johnson your life savings so he can run a tube line to Bromley? I thought not.

The Mayor originally proposed his plan in a weekend op-ed in the Telegraph, which can be read here.

Major Pension Fund Backs London Mayor’s “Megafund” Idea

We covered yesterday the plan proposed by London Mayor Boris Johnson to merge the country’s 39,000 public sector pension plans into one scheme, which would invest in building and updating the UK’s roads, airports, railroads and other infrastructure.

Today, one of the UK’s largest pension funds has come out in support of the plan. From the Financial Times:

The £4.9bn London Pensions Fund Authority (LPFA) said it supported the London Mayor’s call for tens of thousands of public sector schemes to merge, with the money used for infrastructure investment.

[…]

“The overhead costs of running a large number of pension funds can run into billions of pounds,” said Edmund Truell, chairman of the LPFA.

“We have been trying to go direct with our investments and cut the layers of costs. I would consider it ‘job done’ if we were absorbed into a sovereign wealth fund.”

Pension investment advisers said it was far from perfect that so many small funds manage their investments individually but they would be concerned about the creation of one enormous fund.

“Many local authority funds are too small to be able to make individual investments in alternative assets or to have a bespoke liability-driven risk management strategy,” said Ros Altmann, a pensions expert.

“However, I would be concerned about too much concentration as well and would prefer to see a number of large funds, not just one or two.”

The Mayor originally proposed his plan in a weekend op-ed in the Telegraph, which can be read here.

Photo By Andrew Parsons/ i-Images

London Mayor Wants Pension Funds to Invest In UK Infrastructure

The Mayor says the plan would give pensioners great returns while improving the infrastructure of the country. From the Daily Mail:

A single fund could be used to create a ‘Citizen’s Wealth Fund’ to boost the economy and improve roads, rail and airport links.

Mr Johnson argued in the Daily Telegraph that incomes from tolls on new roads, passengers on new railways and airport charges would help create returns of up to 8 per cent for pensioners who invested with them.

He calculated local authority pension funds alone could hold assets of more than £180billion, while combining all public sector pensions would yield ‘hundreds of billions’.

Mr Johnson said: ‘There are more than 39,000 public sector pension funds in this country – each with its own trustees, managers and advisers and accountants. The waste is extraordinary.

‘Think of all those advisers and investment managers taking their fees – their little jaws wrapped blissfully around the giant polymammous udder of the state. Think of the duplication.

‘But it is worse than that – because this country is missing a huge opportunity, and one that is being exploited by more sensible governments around the world.’

Mr Johnson said: ‘The little pension funds will fight for their independence; they will make all sorts of spurious arguments about the need for “localism” in managing this dosh, when of course the advice is all subcontracted to the same legion of investment managers, and when what they really care about is their fees and their tickets to Wimbledon…and their golf-club bragging rights.

‘The vested interests must be ruthlessly overridden. It is time for Britain to have its own Citizens’ Wealth Fund, deploying our assets in a useful way, helping us to bolster pensioners and cut pointless public expenditure at the same time.’

Pension funds from other countries, such as Canada, have invested in British infrastructure already.

The Mayor originally proposed his plan in an op-ed yesterday in the Telegraph, which can be read here.

Photo By Andrew Parsons/ i-Images