The Department for Communities and Local Government (DCLG) has announced that it is considering a number of options to create savings through pension fund collaboration.

An external organisation will be commissioned to develop specific advice on the potential for new savings and greater accountability in the management of town hall savings through increased pension fund collaboration.

Three possible options will be considered, and these are: a single national investment fund vehicle, a small number of closely aligned combined investment vehicles, or merging the 89 funds into a few larger funds.

The DCLG said that according to published figures, there is scope to for reforms to improve performance and reduce investment management and administration overheads, which cost taxpayers £508m in England and Wales.

Local government minister Brandon Lewis said: "This government is taking action to reduce the massive and unsustainable cost of state sector pensions with higher contributions from well-paid staff. Already for the first time in recent memory, the cost of town hall pensions to taxpayers is now falling.

"But there is more that can be done, which is why today I am launching a process to get professional advice and analysis from financial markets experts on ways to reduce the £508 million investment management and administration bill through greater joint working, potential fund mergers or pooled investments and increased data transparency that will make the pension scheme more accountable to its taxpayers."

The commissioned work will also consider whether other funded public service pension funds can benefit from a more collaborative approach.

The announcement follows a call for evidence into ways of improving investment returns and reducing funding deficits within the local government pension scheme by increasing fund co-operation, transparency and accountability to taxpayers.

Francis Maude, Cabinet Office minister, said: "Ministers need the best possible policy advice to ensure better public services and value for taxpayers. Because Whitehall does not have a monopoly on policy making expertise we want open policy making to become the default in government."

First published 24.10.2013

monique_simpson@wilmington.co.uk