Saturday, October 27, 2012

Do we really oppose investing our pension funds in building homes?

It's a necessary and legitimate role for a trade union to sound a note of caution - indeed it seems I have to do that almost daily to my own employers at the moment (and I really must find time to blog about the "cooperative council" at some point!)

However, UNISON's response to the Royal Institute of British Architects (RIBA) Future Housing Commission proposals for the Local Government Pension Scheme (LGPS) to fund housebuilding, covered in the last post on this blog may err to far on the side of caution (http://www.unison.org.uk/asppresspack/pressrelease_view.asp?id=2857).

We are warning the Government of the risk of legal challenge if LGPS funds are invested in housebuilding as this may be contrary to the interests of scheme members.

So far so good. Our members will be pleased to gain the impression that we are protecting their interests.

But...

The starting point in a defined benefit pension scheme - like the LGPS - is that investment risk is borne by the employer (that's the main attraction of a defined benefit scheme).

Discussions about future "cost-sharing" have been around sharing (between employers/Government and employees) the demographic "risk" of increases in lifespan beyond retirement - not (at least not as far as we have been told thus far) about sharing investment risk.

Therefore, if we know what our contributions are and what our benefits are, and if both continue to be defined in regulations for LGPS 2014, then any investment risk arising from long term investment in housebuilding is a risk to be borne by the Council taxpayers via the employers' contributions following the next triennial valuation, and not by employees through increased contributions or reduced benefits.

(Unless someone is expecting something rather nasty and completely unheralded in the small print of the LGPS 2014 Regulations?)

As a general principle we should surely favour investing the considerable pension funds in the LGPS in ways which prioritise social benefits alongside financial returns. In the 1980s the fund which will one day pay my pension refused to invest in Apartheid South Africa, with the enthusiastic support of the trade unions.

If we can support an investment strategy which rules out certain investments then I cannot see why - in principle - we should oppose a strategy which rules certain investments in?

Sent using BlackBerry® from Orange

3 comments:

Anonymous said...

Note we were asked to vote on the deal before the agreement on future cost sharing has been agreed, is it possible that the deal could be we the members will have to pay for any increased costs to the scheme?

Glenn Kelly

sean said...

couldn't agree more. The idea of our LGPS funds being used to fund socially useful projects like mass social housebuilding is one I would support. Rather that than us simply employing estate agents to manage office accomodation we own (as most of our funds do already)

alternative investments said...

I would agree with Sean above. But, in moderation, a small part of a more diversified portfolio.