Wandsworth Council has criticised London Pension Fund Authority's proposals to merge the capital's local government pension scheme funds.
Last month, LPFA chairman Edmund Truell suggested London's LGPS schemes should pool assets into a single fund in order to cut investment and administration costs (PP Online 18 February).
Today, Wandsworth pension committee chairman Councillor Maurice Heaster condemned claims that ‘big is best', arguing LPFA's proposals would cost households in the capital an additional £600 in council tax across three years.
According to research by the council, LPFA's investment strategy would result in significant losses for schemes.
He said: "In London over the past decade, the LPFA has performed very poorly in comparison with the smaller funds managed by the individual boroughs.
"Our study shows that if such a merger had taken place, Londoners would now be £2bn worse off with this massive shortfall having to be made up through higher council tax bills.
"This works out at an extra £598 for each and every household in the capital, a disaster for Londoners already struggling with the rising cost of living."
Wandsworth's own £860m fund has achieved annual returns of 17.38% over three years to end of March 2012. The council argues it would be worth £100m less had it been invested in LPFA's active sub-fund over the same period.
Only five out of 32 boroughs would have benefitted from LPFA's strategy, according to Wandsworth's data.
It suggested London's local authority schemes would have lost a combined £1bn over the last three years, rising to £2bn looking back over the decade.
Heaster said: "If bigger is better, these results shouldn't be possible. Something is obviously wrong with the way that LPFA is operating."
The councillor said merging London's funds now would be "disastrous".
He continued: "At the moment each borough has its own pension fund, with locally elected councillors making key policy decisions, based on with professional advice, that directly affect their own financial circumstances and council tax levels.
"This direct link between pension fund management and elected members means that there is proper democratic control, with elected representatives fully aware of the potential effects on council tax of the investment decisions they make.
"Losing this accountability to the taxpayer for large sums of public money would be disastrous."
The borough is in the process of contacting other London councils, urging them to reject LPFA's plans.
Heaster added: "If there is to be any shake up of pension funds in London, we would argue strongly that judging by its performance over the last decade, it is the LPFA that should be abolished and its remaining assets distributed to London borough funds."
LPFA chief executive Mike Taylor said Wandsworth "is missing the point".
He said: "This is not about comparing LPFA with a London borough, this is about the potential savings that can be achieved by merger of the 34 funds. It's not about an LPFA takeover, it's about running pension funds in London more sensibly."
Taylor highlighted a report from PwC, published in October 2012, which suggested a larger fund structure could deliver savings of up to £120m in the capital, based on a 0.5% combined performance and fee improvement on assets of £24bn.
He added: "That's good evidence that this is something that needs to be looked at a lot further, and not just in the parochial light of ‘LPFA vs Wandsworth'."
