DCLG declares union ‘scaremongering’ with LGPS claims
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Photo: Nick Efford, Flickr
The government has dismissed as “scaremongering” claims made in a UNISON-backed petition that the government’s encouragement for local government pension fund pools to invest in infrastructure projects breaches EU regulations.
Chancellor George Osborne’s rationale for the ongoing process to create a small group of LGPS pools is predicated both on saving costs and inducing more infrastructure investment.
A petition on Parliament’s website launched two weeks ago claims that the government is breaching a European Union directive banning member states from requiring institutions to invest in particular categories of assets.
Colin Meech, UNISON’s national officer for capital stewardship, told Room151: “We believe the government is in breach of the law.
“Once you invest in infrastructure then you are in it for a long time. Many LGPS funds are cash flow negative. The whole emphasis to moving to long-term fixed capital investing threatens the financial viability of the funds.”
At the time of writing, the petition had attracted more than 20,000 signatures. If it reaches 100,000, the issue would be considered for debate in Parliament.
However, a spokesman for the Department of Communities and Local Government said that the government had not breached EU directives.
He said that a power to intervene would only be used in exceptional circumstances where there was clear evidence that a pool was not acting reasonably and lawfully.
He said: “This is unnecessary scaremongering. We are not saying that councils must invest in infrastructure.
“We are simply saying that where appropriate, infrastructure should be considered as an investment option given the potential economic gains.”
In last month’s Budget, Osborne announced that a new national infrastructure platform for Local Government Pension Scheme funds will be created alongside the geographical pools.
Separately this week, accounting firm KPMG estimated that this year’s LGPS revaluation would likely lead to a large increase in the scheme’s deficit.
KPMG actuary David Spreckley told Room151: “In 2013 the LGPS valuation deficit was around £45bn and on a consistent measure we think that is likely to rise to around £65bn.
“This is primarily because long-term interest rates have fallen, meaning the liabilities have increased more than the assets.
“Councils may be able to spread that for longer than other organisations in the scheme, but we think that overall, an extra gap of £1bn a year will be added.”
William Bourne, director at pension scheme adviser City Noble, said: “My understanding is that quite a few authorities are going to be moving to valuations that use CPI inflation plus rates – which is commonplace for unfunded public funds.
“In these cases, the picture probably won’t be as bad as if you had continued to use a gilt based rate.”
But Spreckley said: “The actuaries could adopt a different valuation method that says liabilities are lower – but is that just a change in prudence or a real change in the situation?”
Photo (cropped): Nick Efford, Flickr.
