Cutting costs of Local Government Pension Scheme (LGPS) will be a “dangerous financial gamble” that will affect the UK equity market, warned trade union Unison.
The government’s move to curb the investment powers of LGPS, which collectively own about 2 per cent of UK banks and 1.5 per cent of shares in the top ten companies in the FTSE100, could potentially send the market reeling.
The government’s plan to increase employee contributions by 3.2 per cent would encourage more people to opt-out, thereby reducing employee contributions to the scheme thus affecting UK listed companies and the general economy.
“Local government pension funds are a steady and significant stream of investment for many big UK firms. Worth £160bn, it’s a huge financial boost to private companies, and to the UK economy as a whole,” said Unison general secretary, Dave Prentis.
“At least 20% more could opt out if contribution rates go up further. This will hit cash flow hard and could mean investments are cashed in early. The worst case scenario is that the schemes collapse entirely. This would be a disaster for the taxpayer, who would have to pick up a massive means tested benefits bill later on down the line,” he added.
Figures published by Unison revealed LGPS holds 2.1 per cent in both mobile operator Vodafone and mining giant BHP Billiton, amounting to £1.6 billion and £1 billion respectively.
The LGPS – comprising of 99 local authority pension schemes also owns 1.9 per cent of major UK banks like RBS, HSBC, Barclays and Lloyds.
Unison’s latest criticism comes close to its continuing battle with the treasury over proposed pension reforms, presently under negotiation.
The LGPS policy review committee met on Monday to discuss reforms, report of which is due for submission on or before September 9, 2011.