Next week, Wandsworth and Richmond councillors will sign off the audited accounts for the boroughs’ joint £3.16 billion pension fund, which provides retirement benefits for more than 42,000 current and former council workers.
The accounts confirm the fund remains in surplus, with assets comfortably larger than its liabilities. But beneath the surface, the numbers show a worrying story: over the past three years the fund returned 4.4% a year, far below its own benchmark of 6.1%. That shortfall equates to around £100 million in lost growth: money that would have been in the fund today had councillors opted for passive, index-tracking funds instead of the costly active managers they chose through the London CIV.
Two of those managers – Baillie Gifford and RBC – have been the biggest drag. Baillie in particular was selected after a run of strong years, but the classic lesson has been proved again: yesterday’s star performers often take bigger risks, and end up underperforming.
The fund is also cashflow negative: last year it paid out £103m in pensions while bringing in just £85m in contributions. That makes it heavily reliant on investment income to bridge the gap: another reason why poor performance is so damaging. On top of this, around 15% of the fund is tied up in opaque, hard-to-value investments like private debt and infrastructure, adding a further layer of risk.
Councillors will be given a private presentation at Thursday’s meeting on whether to shift more money into passive funds. But the press and public will be excluded from this crucial discussion, continuing a worrying pattern of decisions being taken behind closed doors.
The case for passive is overwhelming. The evidence shows Wandsworth’s pension fund has been paying high fees for active managers who have consistently underperformed. A pivot to passive would save money, reduce risk, and keep the fund on track to meet its obligations to staff and pensioners.
We will report back after the meeting on two key developments: what action councillors took, and what lies behind a Wandsworth resident’s objection to the accounts: the details of which are still to emerge.
