The government's proposal for LGPS funds to pool assets will undermine the freedom of individual funds, according the former director of West Midlands Pension Fund.
Mike Bailey, who ran the GBP 9.8bn fund for 24 years before retiring, said that the government's proposal to force mergers if schemes don't meet efficiency targets would cause a number of problems.
He said: "If funds are to continue to be given freedom to determine asset allocation locally, there is a conflict with only having a small number of asset pools to use," he said.
It would also prevent individual authorities from pursuing investment strategies most appropriate for them.
The proposals were put forward by the Treasury earlier this year in the Summer budget after a call in May 2013 for evidence on cost saving, which hinted at the potential for merging the 89 LGPS funds into fewer pots.
According to Treasury papers, local authorities will be invited to propose their own plans to meet common criteria for savings, and a consultation will follow later this year.
The consultation will set out 'detailed criteria' for savings and a 'backstop legislation'.
The aim of this proposed law is to ensure administering authorities that do not have sufficiently ambitious proposals are required to pool investments, the papers said.
National Association of Pension Funds (NAPF) chief executive Joanne Segars said pooled investments would only work where they arise out of natural collaboration between funds, rather than where they are forced to invest together.
She said: "The NAPF and its LGPS member funds will engage constructively with the government on this initiative."
However, Brian Bailey also raised concerns in the Local Government Chronicle about how individual LGPS funds would manage their own investments' performances within a pooled vehicle.
He said: "Does each fund in the pool carry out its own management or would it be done for them by a third party or selected group of funds on behalf of all funds?"
"The arrangements must ensure funds can discharge their statutory responsibilities adequately in terms of managing their investments."
Bailey then went on to advocate the use of sub-pools as an alternative, saying they may allow funds more choice over how they invest.
He said: "If sub-pools were permitted, it may be feasible to allow greater choice with funds selecting differing proportions, but asset allocation will nevertheless become more uniform."
First published 13.08.2015