More pensions malarkey

18 Aug

Bankers can’t believe their luck as Newham buys into another crazy scheme

Newham Council’s Overview & Scrutiny Committee will meet next Monday (24 August) to discuss the council’s pension arrangements. Not the new scheme for councillor pensions this time, but the fund that pays for ordinary staff pensions.

Despite the current state of the council’s finances and the need to make significant cuts the Mayor has decided to spend up to £500,000 developing an asset-backed ‘special purpose vehicle’ (SPV) to finance its defined benefit staff pension scheme.  The idea is to give the scheme security over some of the council’s property portfolio, thereby allowing it to reduce its cash contributions.

At its last valuation in 2013 Newham’s pension fund was found to have a £298m deficit.

The decision to spend money developing the new asset-backed SPV was made without the agreement of the Investment & Accounts Committee, whose principal purpose is to oversee the council’s pension funds.

Cllr John Gray, who sits on the IAC, has raised concerns about this proposal and one pensions expert described it as “bloody dangerous”:

Have they learnt nothing from the City as to how not to do it? SPV-financing mechanisms were a significant part of what caused the financial crisis. 

[This] feels like they have been sold a pup by some City whizz. And where does this kind of financing arrangement (off balance sheet most likely) end?

Another expert, Judith Donnelly, told Professional Pensions magazine the half-million pound price “sounds excessive” and that

she would not normally expect it to cost that much to put an asset-backed structure in place

The government announced in its summer budget that if local authority pension funds do not pool their funds they will be effectively forced to do so. So any money Newham spends now investigating changes to its pension scheme could be wasted.

After the dreadful publicity surrounding the £560 million of hugely expensive LOBO loans the council has taken out and the stench emanating from West Ham United’s Olympic stadium deal, not to mention the naked self-interest of the new executive pension scheme, some backbench councillors are finally taking a proper interest in what’s going on. As Cllr Gray put it when speaking to Professional Pensions:

We should be extra careful not in invest in such complex products without the highest level of scrutiny.

That is why Overview and Scrutiny have ‘called in’ the decision. The request to do so was made by Little Ilford councillor Farah Nazeer, who also sits on the Investment and Accounts committee:

I am writing to request that you support my application to “call in” the decision by the Executive at the Cabinet Meeting on Thursday 23rd July 2015 (item 5) to spend up to £500,000 of public money on setting up an “Alternative Asset backed Financing for the Newham Pension Fund”.

I believe that this is the wrong sequencing for this decision because the proposal has not been consulted upon and agreed beforehand with the Newham Council Investment & Accounts Committee.

As a member of this committee I am concerned that this proposal may not be in the best interests of the Council nor the staff Pension fund and we might waste this £500,000 if the Committee decide that this proposal is not appropriate. I understand that the alternative asset proposal has significant risks attached to it which I feel merit proper scrutiny. 

It is inappropriate in principal for any such proposal to go ahead without the agreement of the Investment and Accounts committee beforehand.

I request that the Overview & Scrutiny committee should examine the arguments and consider making a recommendation back to the Executive that no further expenditure of public funds is made until the Investment and Accounts committee have had a chance to fully consider the proposal and are made aware of all  the possible costs and benefits of the scheme.

All Overview and Scrutiny meetings are open to the public. Next Monday’s is at 6:30 at East Ham Town Hall.

3 Responses to “More pensions malarkey”

  1. d August 23, 2015 at 08:54 #

    Don’t worry, everythings safe in sir robins trotters.

  2. Kevin Mansell August 24, 2015 at 16:50 #

    Comment from a friend who chairs a major voluntary sector pension fund:

    `…There’s nothing wrong in principle with SPVs or asset backed vehicles (as long as the assets they are based on are ‘OK’ – the American mortgage backed obviously weren’t!) but it seems that in this case they are paying way over the odds! AND if the Investment C aren’t bringing this forward its really suspicious AND that they are taking significant asset decisions ahead of the government review of LA PFs seems odd as well!….’

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