It was Ben Bernanke who pointed out that the major use of eonomics is to shoot down 90% of the proposals that are made for public policy. This is one of those 90% times with this remarkably silly proposal for how local authority pension funds should be invested:
This makes no sense, according to Birmingham city councillor, John Clancy. He has just published a book, The Secret Wealth Garden, in which he calls for three major reforms of the current system. Firstly, he calls for management fees to be capped at an initial 0.02% of the fund's value. This, he says, would still give fund managers a tidy £43m in fees annually. Secondly, he says funds should be de-risked through an amendment to the Local Government Investment Regulations to require a shift away from equities (particularly overseas equiuties) together with a minimum holding in regional and local investment bonds. This, he says, could provide up to £20bn a year for investment in infrastructure and house building.
Capping fees, well, meh. However, the other two proposals are entirely nonsense.
The point and purpose of pensions savings is to diversify away from the risks that are inherent in having your income coming from only one or two places. Therefore you absolutely do not want to invest your pensions savings in the same economy that you inhabit. For example, unless you're getting a very good matching scheme from your employer investing your pensions savings in the shares of said employer is very much a thing not to do. The same will be true of the local authority pensions savings in the economy of that local area. Imagine that the area enters some horrible near terminal decline? There are, after all, areas of every country that are simply losing population, closing down as an economy. You simply don't want to have the pensions of those in that area reliant upon investments in said area.
So the local investment portion of this idea goes against the very grain of what we're trying to achieve with a pension, a diversification of risk. And who, no seriously, who, would advocate investment in bonds for the long term? When the price of money, the coupons on bonds, have been below the inflation rate for half a decade already? It's nonsense.