22 June 2009
Local Authorities across Britain are believed to be borrowing
hundreds of millions of pounds from staff pension schemes to boost
returns on their own cash deposits - without sharing the full
interest with the pension fund.
Unions want this investment practice, which is outlawed in the
private sector, to be banned immediately. Unions have suggested
that councils' investment strategies may already be illegal.
The Local Government Association insisted that councils were
acting within the regulations. It said, "The law requires councils
to invest their pension fund money properly and prudently, and that
is what they do."
The controversy highlights potential conflicts of interests
among council finance officers, many of whom are responsible for
pension investments as well as for the general council funds used
to finance day-to-day services.
Councils are allowed to invest 10% of their pension fund money
and have typically elected to put the borrowed cash in
high-interest accounts. In return, the pension funds receive an
uncompetitive interest rate, based on seven-day inter-bank
rates.
