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Pensions pincer
• PLUGGING the huge hole in the Islington Council Pension Fund that is now well over £400million will seriously affect the increasing claims on the council’s overall budget. It is caught in a pincer movement – increasing demands for council services but falling revenue collections.
The £6million currency windfall for the pension fund that arose in 2007-08 (‘Systems error’ that led to £6m pensions boon, March 27) is only small change.
The assets of the pension fund were valued at £689million at March 31, 2008, of which equity shares were around two-thirds of total assets. Well over £100million may have been wiped off this asset figure since then as equity prices have gone down the plughole
The liabilities of the pension fund were valued at £1,087,000,000 at March 31, 2008; and the deficit in the council’s pension fund was £398million.
Over the past year, since the end of March 2008, the FTSE All Share index has slumped 34 per cent and the FTSE All World ex UK index has fallen even more sharply.
The pension fund deficit of £400-£500million or more is required to be made up by the council from its increased annual contributions, which are spread over 24 years. These extra annual contributions will require probably more than £20million a year in additional council spending so as to meet the total pension fund deficit. The council’s “recession budget” for 2009-10 will be tightly constrained by the pincer movement of increasing demands for council services but falling revenues to pay for them.
The executive member for finance, Councillor John Gilbert, needs to tell the pensioners and local ratepayers how and from where extra money to plug the pension fund deficit will be found, at the next executive meeting of the council at the Town Hall on Thursday
One-third of the pension fund assets are held in UK shares. These have been managed since 1992 by officers in the council’s loans and investment section and they merely track the FTSE All Share index within a plus or minus 0.5 per cent range.
About another third of all pension fund assets are held in overseas companies and these are managed by two City investment advisory companies. They also merely had to track and slightly outperform the FTSE All World ex UK index.
It is open to question whether council officers should be their own investment fund managers and whether their investment strategy is prudent. Was timely evasive action taken by the council’s loans and investments section after the credit crunch began and declines in equity prices were forecast?
Council staff, their union members and the 6,000 pensioners who are stakeholders need independent and expert advice on the management of their pension fund.
LEO CHAPMAN
Dufferin Street, EC1
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