This week began with a long-winded and desperate call from London mayor Boris Johnson for the merging of all public sector pension funds, in order to fund the construction of vital infrastructure. In his weekly column in UK national paper The Daily Telegraph, Johnson claims the UK’s more than 39,000 public sector pension funds are all running silo operations, leading to extraordinary waste.

However, London’s two-term mayor, employing his customarily colourful language, goes on to suggest that the UK has missed a huge opportunity, one being exploited by “more sensible governments around the world.” This opportunity, according to Johnson, is to pool pension funds and create “gigantic sovereign wealth funds”, which could invest in infrastructure. He singles out Canada, the Netherlands and Singapore as examples of countries having done this. Amalgamating the 101 funded local authority funds would collect assets of around £180bn and, Johnson said, after adding the remainder of the 39,000 public sector schemes, create a pot worth “hundreds of billions” of pounds.

The Mayor’s basic premise is not wrong in and of itself – IPE has previously suggested that a common investment vehicle for the local authority funds could in theory work quite well, with infrastructure exposure a big winner. But that is a common investment vehicle, not the amalgamation of funds – particularly unfunded ones that have no assets. Of the 39,000 public sector pension scheme figure repeatedly used by Johnson, practically all are unfunded pay-as-you-go set-ups, with contributions paying out pensions, and the government picking up the shortfall, hence no assets to invest. Flaw number one.

Second, a “citizen’s wealth fund” is not the purpose of pension schemes. Their primary purpose is not to stimulate economies or take control of the £100bn of infrastructure needed in the UK. They do not belong to the government nor all the citizens of the UK. They are the sole property of the beneficiaries, and survive to serve their retirement needs. Yes, there is certainly space for infrastructure investment within this, and yes, IPE agrees it could be more efficient. But the proposal to merge thousands of funds borders on the ludicrous.

Third, there is a conception among politicians that pension funds hold back from infrastructure due to their own scale. While it certainly is a deterrent for some smaller schemes, there are wider issues to consider. One is simply risk/return payoffs. There have been numerous attempts to get pension schemes in the UK to invest, but many remain apprehensive without underlying government guarantees.

The Pensions Infrastructure Platform – a method of channelling investment into infrastructure “for pension schemes, by pension schemes” – had a sluggish start and, in the three years since conception, only managed about £200m of secondary asset investment. Three of its founding members left over cost and return concerns.

There is also an issue with availability of assets. ABP, name-checked by Johnson, only has just over 1% of its assets in infrastructure. The London Pension Fund Authority (LPFA) – whose chairman, Eddie Truell, is a strong advocate of pension scheme infrastructure investment – only has 3.5%, or £170m, and that’s after making an effort.

This leads onto the final point, and, as with all political statements, one has to look at who, or what, is behind it. Truell and Johnson’s strong relationship is well known, as is the LPFA’s stance on merging local government schemes, particularly in London, with itself at the core. Its recent response to a government consultation on the future of local authority funds strongly supported mergers, only for Johnson’s Conservative colleagues in Whitehall to rule it out.

The pair have long worked together to promote investment, with Johnson sharing Truell’s dream of the LPFA to incorporate all London funds with huge investment in the city’s housing and infrastructure. So one questions where Johnson’s musings originate. The pair has often sung from the same hymn sheet, although one would expect Truell’s copy to differentiate between a funded and unfunded pension scheme.

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