Odeon deal just part of the pension picture

BELFAST BRIEFING:A NORTHERN Ireland pension fund is set to enjoy a starring role in an English town after acquiring its only cinema in a deal worth more than £9 million.

The fund, which operates one of the biggest pension schemes for public sector workers in the North, has bought the Odeon cinema site in Epsom, Surrey.

It is hoped the latest acquisition will deliver a “secure income stream at an attractive yield” for Nilgosc (the Northern Ireland Local Government Officer’s Superannuation Committee). This is the body, set up in 1950, which oversees the local government pension scheme.

Recent figures suggest there are 202 employing authorities contributing to the scheme, which includes councils, education and library boards and 84 schools.

However, Nilgosc’s latest big screen investment is unlikely to divert the spotlight from a growing controversy that could affect its 90,677 members in the North. There is growing unease about what exactly is happening with public sector pensions and how this is going to impact on the local economy.

First there are the UK government’s proposed pension reforms, which would result in public sector workers having to pay more for their pensions and to work at least until 66 or 67 years of age before they are entitled to receive them. The North’s Executive has, in principle, agreed to implement the changes that the UK government wants to administer to public sector pension schemes.

One of the biggest unions in the North, the Northern Ireland Public Service Alliance, has rejected the government’s proposed reforms and warned that strike action could follow if they try to push them through.

Given the size of the North’s public sector workforce, any reform is a very serious issue.

Take, for example, how it will impact on the local spending power of Nilgosc’s 90,000-plus members and how this would filter down on the services and retail sectors in the North.

It is not just the government’s pension reforms that Nilgosc’s members have to think about – there is an issue around a deficit that appears to be growing every year. Although the organisation appoints fund managers to manage and invest its money, it maintains overall responsibility for the Northern Ireland local government pension scheme.

The most recent actuarial valuation shows the scheme is in deficit to the tune of £783 million.

Nilgosc states that one of the reasons the deficit has increased is that funding levels have dropped because of a decline in returns from the markets due to the “financial crash”.

Scheme actuary Hymans Robertson says this means employers – such as local councils – will have to increase the money they contribute. They suggest that, to make up the deficit shortfall and achieve full funding in 20 years, the average employer contribution rate could rise to 23.8 per cent of pay.

Just how budget-challenged councils, education and library authorities, not to mention schools, will find the extra money to hike pension contributions is a question yet to be answered.

But at least Nilgosc’s members can be reassured by the performance of its investment fund. Latest annual accounts show that the fund’s value had increased to £3.95 billion – the highest level in the history of Nilgosc. In the 12 months to March 2011, the fund grew by £397 million or 11.2 per cent.

Nilgosc might also get a welcome boost next month when the final stage of its long-running court campaign to win millions of pounds in compensation against Lehman Brothers Holding unfolds. The fund bought 197,700 Lehman shares between September 2006 and March 2008. It claimed to have incurred millions of pounds in losses because of the former US investment bank’s investments in mortgage-backed securities and its sub-prime exposure. Nilgosc has never disclosed how much it is seeking in compensation but it is estimated to be some £8 million.

Given the size of the public sector workforce, any reform is a very serious issue