Will Rachel Reeves’ public sector pensions plans work?

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Will Rachel Reeves’ public sector pensions plans work?

data:image/gif;base64,R0lGODlhAQABAIAAAAAAAP///ywAAAAAAQABAAACAUwAOw==Reuters

Chancellor Rachel Reeves says she wants pension schemes to ‘***** up the economy’

Chancellor Rachel Reeves wants to “***** up the ***’s economy” by creating a “*********-style” pensions model for the ***’s local government retirement schemes, according to the Treasury.

She had a meeting with the so-called “Maple 8”, a group of massive ********* schemes, to hear how consolidating *** pension funds could boost the economy.

But what does that mean for savers?

The government claims Ms Reeves’ pensions review will “boost investment, increase pension pots and tackle waste in the pensions system”.

By diversifying investment, the government says the plans could boost pension pots by £11,000 and pour £8bn into the economy.

This includes investments in science, technology and infrastructure.

As part of these plans, the review is also looking at how the Local Government Pensions Scheme (LGPS) can get more from its investments while tackling a £2bn bill for fees.

But because the LGPS is a defined-benefit scheme, where workers’ pensions are based on salary and service length, savers will not see any benefit in their pension payments.

What is the Local Government Pension Scheme?

The *** has 86 local government pension schemes, which are mainly paid into by local government workers.

These individually-managed funds are divided by local authority, making it more costly, because each fund is paying its own management and administration fees.

Between them, they have

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.

The schemes are all part of the Local Government Pension Scheme (LGPS) in England and Wales, which is the

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in the world, according to the *** government.

Most of its participants are low-paid women.

Under Ms Reeves’ plans, the funds would be consolidated in some way, although at present it is unclear exactly how.

She may ask them to pool their assets and resources, or she may ask them to merge with one another to create a smaller number of larger funds, which would benefit from greater financial firepower and fewer costs.

The LGPS is a defined-benefit scheme, which means that, when it is time to draw their pensions, its savers get an agreed amount based on their salary, no matter what the fund is worth at the time.

That is different to private pension pots, which rise and fall in value depending on how investments perform.

What is the “********* model” and why does Ms Reeves believe it can help the *** economy?

The “Maple 8” is a group of vast ********* pension funds, including the Ontario Teachers Pensions Plan, which manages

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C$247.5bn (£141.8bn), and the Canada Pension Plan, whose

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C$409.6bn.

The government wants not only public sector funds to “learn lessons from the ********* model” but also private sector funds.

While *** pension schemes tend to invest more in assets like equities and bonds, their ********* rivals focus more on private markets.

The Ontario Teachers Pensions Plan, for example, only has

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.

Instead, it skews its investments towards private markets, including infrastructure (including a

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in British energy giant SSE) and private equity deals.

This kind of model is not without risk, however.

********* pension fund the Ontario Municipal Employees Retirement System is the largest investor in troubled Thames Water, which recently said it

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.

Would consolidation help?

Individually, the ***’s 86 local government pension schemes vary in size, from Greater Manchester’s massive £30bn fund all the way down to several schemes which are “sub-£1bn”, according to Joanne Donnelly, board secretary at the Local Government Pension Scheme Advisory Board.

Running these schemes costs money. Each one must pay administration, governance and management costs, which can build up – last year, those costs

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.

Like her predecessor, Jeremy Hunt, who also

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for a *********-style model, Ms Reeves believes consolidation would save money on those costs.

That would in turn “deliver better returns for savers and unlock billions of pounds of investment”.

What is ‘pooling’?

In one way, LGPS funds have been consolidating

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, when then-chancellor George Osborne set out plans for them to pool resources and assets.

The result was eight “pools” of funds, which are designed to improve economies of scale and improve funds’ ability to invest. These are

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by 2033.

In

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autumn statement, Mr Hunt set a deadline to local government pension funds, saying that by March 2025 they must have transferred all their assets into pools.

But Ms Donnelly says in reality, this is unlikely to happen. “It’s nice to have a target,” she says.

There is another option for pension funds: consolidation through a series of mergers.

This would not be the first time that has happened – 400 funds were consolidated into 88 in 1972.

How do the pension funds feel about the prospect of mergers?

“******* isn’t always better,” says Ms Donnelly, who adds that some funds prefer independence so they have the option of investing in small projects.

“Some local pension funds want to invest in opportunities closer to home,” she says.

“A lot of those are small – we’re talking a few million. A pool won’t write a cheque for less than £100m – they’re not going to want to look at those opportunities. But they still deliver benefits for the *** in terms of productivity.”

George Graham, the director of the South Yorkshire Pensions Authority, adds that any deal-making would not be popular with funds.

“Clearly, those who are responsible for existing funds don’t want to give up that responsibility,” he says.

“But also, any form of merger in business, is time-consuming and costly.”

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