UK local pension funds to merge

The move, announced by the government today, aims to cut costs and fees and to deploy more funds into infrastructure.

The UK is to pool its 89 existing local authority pension funds into six British Wealth Funds managing assets of more than £25 billion (€33.8 billion; $38 billion) each, George Osborne, the country’s Chancellor, announced today as part of an address at the Conservative party conference.

The initiative, which Osborne assessed would save “millions of pounds every year in costs and fees”, also aims at equipping the institutions responsible for managing pension money with the scale and skills to deploy larger sums in the infrastructure asset class.

“It will change the way pension savings are invested. The funds will follow international norms for investment, meaning larger sums being invested in infrastructure,” the government said in a statement, observing that out of the £180 million of assets local authority pension funds oversee, only 0.5 percent is earmarked for such projects.

Along with pensions mergers, the creation of the National Infrastructure Commission (NIC) was announced, a new body tasked with analysing the UK’s long-term infrastructure needs. “The Commission will calmly and dispassionately assess the future infrastructure needs of the country and it will hold any government’s feet to the fire if it fails to deliver,” Osborne commented in his speech.

The NIC is set to start work immediately, with a plan to improve connectivity of Northern cities, identify priorities for future large-scale investment in London’s public transport and ensuring that investment in energy infrastructure allows the country to meet its needs among its topline items.

The commission will be headed by Andrew Adonis, a former schools minister, policy chief under Tony Blair, and most recently Labour whip in the House of Lords credited for being the brain behind the UK’s schools academy programme and second high-speed rail (HS2) line.

The NIC initiative largely builds on ideas that were first mooted by Ed Miliband, Labour’s previous leader, as part of his manifesto for last May’s general elections.

It is expected to publish advice to the government on these issues, which also include evaluating the need for and cost of a third potential high-speed rail line (HS3), before the Chancellor announces his next Budget in July 2016. It is also set to begin work on a national infrastructure assessment aimed at sizing up the country’s requirements for the next 30 years.

Industry observers welcomed the body’s creation and thought that reaching out to one of Labour’s great thinkers was a clever move by the ruling Conservatives. They cautioned, however, that the NIC’s effectiveness would largely depend on how it is allowed to function in practice.

“Politicians aren't well placed to take long-term strategic views on infrastructure because many projects are long-term and span electoral cycles. So the composition of the Commission will be very important,” said Richard Laudy, head of infrastructure at Pinsent Masons.

Also announced today was the sale of about £5 billion in land, buildings and other assets the government has bought or built, with a pledge to spend the proceeds on new infrastructure projects.