Letter: Corralling civil servants into a DC plan is hard bit

Toby Nangle’s Markets Insight piece (“Public service pension cash can be put to work”, Opinion, February 23) looks again at the riddle “Which is worth more? £1bn of government debt (real or imagined) or £1bn of managed investment?” and concludes that invested assets win out, citing local authority pensions as one example of success.

What he omits however is the underlying guarantee on the investment strategy and its implicit cost. There appears to be no circumstances where local authority pension benefits are reduced. Evidence for this comes from the numerous failures of local authorities (usually because of borrowing to invest) which have no impact on members’ benefits, regardless of investment returns. This can be contrasted with the private sector when most schemes for failed companies enter the Pension Protection Fund with lower benefits.

So possibly the proposal could be reversed with all local authority funds handed to the government (which could certainly benefit from the cash) and the liabilities placed off balance sheet (where the implicit guarantee already lies). There is precedent for this in the Royal Mail privatisation where the historic liabilities were handed to the government along with the not insubstantial unhindered assets. With this approach the challenges raised in the article go away.

This only leaves the issue of how to persuade the civil service and others to forego their current benefit structure to join the majority of private sector employees in defined contribution arrangements.

If only there was a chunk of spare cash around to ease that transition!

David Cule
Punter Southall
London WC2, UK