Audit Commission finds London local authority pension schemes too small to deliver cost savings

London councils could save millions of pounds by making changes to their pension administration arrangements, an Audit Commission study has found.

Its report, Efficiency Challenge: costs of administering local government pension funds in London, published today, suggests a range of options for change.

These include creating one London-wide pension fund and establishing one pension authority to administer London council pensions while retaining individual councils’ funding arrangements.

Each of the 33 local authorities in London, including the City, has its own pension scheme. On average, each fund is worth £355m and has 13,000 members.

If all the schemes were combined the London-wide scheme would have 414,000 members and a value of £11.8bn.

High administration cost

The study found nationally, larger councils’ funds are administered at a much lower cost per member. The average administration cost per London council scheme member is £126 compared to only £44 for metropolitan council funds.

If London boroughs were able to reduce their total administration costs per scheme member to the level of the average metropolitan fund they would spend £34m less each year.

This scale of reduction would require significant change to take place and would therefore take time.

The study found these cost differences are due in part to the ‘London effect’ – the higher cost of salaries and office accommodation in London – but also to the smaller scale of the 33 London schemes. This means they do not benefit from the same economies of scale as other councils.

The chief executive of the Audit Commission, Steve Bundred, has written to key stakeholders to inform them of the findings of the report and the possible options available to them.

Bundred said: “London pension funds cost significantly more to administer than the national average. Our study has identified the reasons for the higher costs, and some options for securing significant savings.

“We hope that the 33 London boroughs, with the support of London Councils and the Department for Communities and Local Government, will use this report to challenge their current pension arrangements and move towards a more efficient system for the benefit of all their members and taxpayers.”

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