UK public pension funds should work closer together to reduce deficits and mitigate against recent monetary and political decisions that have negatively impacted the industry, a pensions expert has said.

Ros Altmann said at the London Pension Fund Authority's (LPFA) member forum in London that pension liabilities have risen by as much as 50% over the past few years, due to policies such as low interest rates and quantitative easing, combined with lower gilt yields.

She advocated that a new approach was needed to tackle rising pension deficits.

Altmann said: "The policy of ultra low interest rates has undermined all kinds of pensions. Every one percentage point fall in interest rates increases pension liabilities by 20%, while assets only rise by 6-10%. Given that since the financial crisis gilt yields have also fallen sharply, liabilities overall have increased by 50% in a few years."

She added: "There is a real need for more creative investment solutions, for example, smaller funds coming together with larger funds to invest on a collective, active basis.

"This will bring benefits in diversification and economies of scale, as well as improved governance and greater expertise. It will also allow funds to access asset classes such as infrastructure, which deliver long term returns that match pensions liabilities."

The LPFA said that Altmann's speech supports its position that the solution to eliminating the UK's public pensions deficit, which equates to at least £50bn across the 89 LGPS funds, requires funds to work in partnership to access the benefits of asset and liability management (ALM), realise economies of scale in pensions administration and benefit form improved governance.

LPFA deputy chairman Sir Merrick Cockell said: "The Government has been strongly focused on making changes to the LGPS this year, launching a new consultation with the key aim of reducing deficits in public pensions.

"Working in partnership will help to deliver this, giving us more direct access to asset classes that provide the long term returns that are the best match for our liabilities. We have sent this message very clearly to the government and are encouraging others to embrace this."

First published 12.09.2014

monique_simpson@wilmington.co.uk