Council leader attacks investment managers and threatens to withhold £65m from pension fund
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John Clancy. Photo: Birmingham City Council, Flickr
Birmingham City Council’s leader, angry at the level of fees paid to external managers, is threatening to withhold £65m needed to help bail out the West Midlands Pension Fund.
Trustees of the £11.5bn fund are seeking an extra £100m this year from member councils because of a £2.8bn deficit.
But Birmingham council leader John Clancy says that the fund needs to get its house in order rather than seeking additional money from taxpayers.
He said: “We will make the increasingly tough choices to balance our budget as required by law in the face of unrelenting cuts from government. We will make some difficult decisions in the next couple of months.
He added: “The West Midlands local government pension fund needs to get its financial house in order and must start to live within its own real means like the rest of us.”
Council leaders in the West Midlands are understood to have been told privately that the fund faces an estimated deficit of £2.8bn.
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They have been asked to provide an extra £100m in 2017/18, with Birmingham asked to contribute £65m.
Clancy launched an attack on the cost of paying fund managers to run the pension fund’s investments, saying that getting rid of them would save tens of millions instantly.
He said: “Retired and existing council staff are being short-changed by very poor performance of the fund and its deficit-causing payment of investment fees of £80m a year.”
“Quite honestly, the West Midlands fund could have done almost as well simply putting its money into deposit accounts, getting rid of its investment advisers, and saving itself more than £70m a year,” Clancy argued.
The West Midlands Pension Fund responded by saying it had warned member councils at the 2013 valuation that more contributions would be needed and that local authorities have had three years to work extra payments into their plans. It also said investment managers’ fees have been cut by £35m over the same period
It added that the fund’s assets had “outperformed” over the past three years, adding £2bn to its value and cutting £280m from the funding deficit.
Cllr Ian Brookfield, chairman of the pensions committee that governs the West Midlands fund, said: “Members have been given pensions promises by their employers and we are tasked with ensuring the fund delivers these.
“Both investment returns and additional contributions from employers are needed to address the funding deficit, we can’t ignore it or push it out for a future generation to deal with.”
He added: “We note the comments by the leader of Birmingham City Council but his views do not represent the wider political leadership of the West Midlands. No other employer is refusing to pay employer contributions.”
The pension fund’s annual report, released earlier this year said that there had been a fall in the cost of investment management from £81.2m in 2014/15 to £69.8m in 2015/16.
