In September 2014, Conservative members of the Pension Committee raised concerns with the management of the pension fund and in particular:
- Insufficient provision of training for pension committee members;
- Lack of access for committee members to scrutinise external asset managers;
- Exclusion of Opposition members from crucial pre-meetings of the pension committee;
- Lack of consultation with Opposition members when important decisions were made with regard to allocating assets.
In February 2015, at a meeting of the Full Council, I warned Labour about their governance failures in the running of the pension fund, in particular under the leadership of the now discredited Labour lead for Finance Cllr Simon Hall.
Labour fired the well respected financial advisor, who had been on the committee for some twenty years, without consulting the committee. Labour also fired the committee’s co-opted member who advised on property.
Labour sacked all the fund managers who held equity mandates and stated all the money was going in an ethical fund, representing 60% of the fund, and therefore a concentration risk. This has restricted the stock selection and also the move away from active to passive asset management has harmed returns. For some years the ethical investment strategy has resulted in much lower yields to the scheme and it runs the risk that in the future it will have insufficient funds to pay its liabilities.
However, the most serious failure in managing the pension fund concerns this failing Labour Council’s ‘asset transfer’ policy. Labour decided in 2018 to stop paying its regular contributions and instead agree that in forty years’ time it would ‘gift’ the pension fund a portfolio of residential properties.
In November 2018, when this was first proposed to the Pensions Committee, Conservative Councillors expressed severe concerns about the new funding structure. Labour were really just transferring a low performing asset that did not have an income stream into the pension fund so they could help fund their own pet projects.
This investment took up 10% of the fund’s value in what was already an underfunded pension scheme. As of the last triennial valuation it was only 73% funded in relation to its liabilities. But by investing in these assets the fund is missing better opportunities to make up that shortfall. The investment is not cash-flow generating and promises a return of less than four percent, compared to the fund's target of six percent in the private rental sector.
At subsequent meetings of the pension committee, such as in December 2018, Conservative members continued to raise concerns about the asset transfer.
In November 2019, at the Pensions Committee, the Local Pensions Board as well as the Council's own pension scheme manager revealed they had been formally interviewed by the Pensions Regulator in respect to the asset transfer.
One of the central tenets of pension fund investment is the concept of diversification, or not putting ‘all your eggs in one basket’. Yet the asset offered by the Council was an undiversified portfolio of local affordable housing stock concentrated in one corner of London.
The decision came to Full Council on 28 January 2019 for ratification. That decision was nodded through with the Conservatives' request for a debate on it declined.
There can be nothing more sacrosanct than the protection of people’s pensions. It is abundantly clear that political decisions should not be taken over the committee’s responsibility to those in receipt or contributing to Croydon Council’s pension fund.
Even at the last pension meeting I raised questions over why a decision to once again put all the equity into one mandate without the advice of our investment advisors could be taken. Fortunately, on this occasion Mercer’s agreed “it would be wrong to put all your eggs in one basket” and yet another disaster was averted.
Labour disclosed that the probable sum lost by transferring everything to passive equity could be in the region of £40 million. Cllr Simon Brew asked the question at Full Council in relation to further losses on 27 January 2020. Whilst we of course support ethical investments and the divesting away from tobacco we don’t support Labour’s political choices that have been taken over sound financial decisions.
Conservative Councillors feel we have taken every possible action available to us, but still they ploughed on with their atrocious decisions.