Business Irish

Wednesday 28 September 2016

UK eyes local authority pensions to fund investment schemes

Simon Jessop, Sinead Cruise and Carolyn Cohn

Published 05/08/2016 | 02:30

British PM Theresa May. Photo: AFP/Getty

A UK government plan to overhaul how local authorities invest their workers' pension money is meeting opposition from some trustees worried they will be forced to accept low returns for funding new roads, railways and other capital projects.

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The government has proposed merging nearly £200bn (€236bn) of local authority retirement savings into investment pools that would be used to help pay for improvements to Britain's infrastructure.

It is also wooing other investors such as insurance companies who want secure, long-term revenue streams.

While several years in gestation, the plan has taken on greater importance since Britain's vote in June to leave the European Union, with new Prime Minister Theresa May looking for lasting remedies to support an economy facing a period of stagnation and weak growth.

But there is opposition to the ambitious scheme among the stewards of 89 Local Government Pension Schemes (LGPS) in England and Wales, who together manage the retirement savings of over five million people.

The government says its plan will help them to trim costs and improve returns when many are struggling to plug deficits caused by weaker returns on staple bond and stock investments.

But some pension scheme managers are concerned over what they see as an attempt by central government to take more control of their investment policies. "It could be very positive and mean substantial investment in infrastructure schemes or it might mean the dead hand of the Treasury comes in and say 'you will invest in this'," said David Wilcox, a councillor in Derbyshire in central England.

"That's my greatest concern and the concern of the scheme members."

Local officials fear the investment pools could mean they end up funding riskier or lower return projects than they might choose to support independently.

The schemes are used to having full control of their investments and are reluctant to surrender any more power in what is already a centralised political system.

A spokesman for the Department of Communities and Local Government (DCLG) said the government has not said local authorities will be compelled to invest in infrastructure, just that it should be considered.

Yields on building projects also vary widely. Returns on low-risk infrastructure debt could be as low as Euribor plus 250 basis points, said Peter Hobbs of the advisory firm bFinance, and are unchanged since the Brexit vote.

Riskier projects, meanwhile, are more akin to private equity investments and can net returns of up to 25pc, Mr Hobbs added.

Since taking power last month, Ms May's administration has announced plans for a £344m expansion of London's City Airport, and could back a multi-billion pound high-speed rail project to link London with central England.

UK Treasury and DCLG spokesmen told Reuters the local government wealth fund plan will be proceeding, with the pools potentially up and running by April 2018.

While the local schemes are broadly open to investing more in infrastructure, problem projects such as the over-budget Channel Tunnel linking Britain and France remain fresh in the memory of investment committees. (Reuters)

Irish Independent

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