‘Very small’ impact from financial turmoil expected to be felt by Notts public sector pension pot

Nottinghamshire County Council's County Hall
By Andrew Topping, Local Democracy Reporter

The significant fluctuation of financial markets caused by the Government’s ‘fiscal event’ last week is only likely to have a “very small” impact on  Nottinghamshire public sector pensions.

The Bank of England stepped in to calm markets this week after some types of pension funds became at risk of collapse.

It followed last Friday’s ‘mini-budget’ by new Chancellor Kwasi Kwarteng, which was followed by sharp fall in the value of the pound. Some banks also withdrew mortage products following market changes.

Concerns were caused, in part, by investors demanding a much higher return for investing in Government bonds, sparked by fresh announcements of Whitehall borrowing.

The Treasury borrows money to fund its spending plans by selling bonds – known as gilts – to investors, including private pension funds or banks.

The fresh borrowing pledges from Mr Kwarteng caused the value of some bonds and long-dated gilts to halve and led to private pension companies moving to sell many of their assets.

This led to their value falling in price even further and caused the Bank of England to step in and commit to buying £65bn worth of Government gilts.

The move was announced on Wednesday to prevent pension funds from getting to a position where they couldn’t afford to pay their debts or losses.

However, following the announcement, members of the Nottinghamshire Local Pension Board have stepped in to reveal the Local Government Pension Scheme (LGPS) is not likely to be heavily affected.

Keith Palframan, group manager for financial services at County Hall, told a meeting on Thursday (September 29) that the fund does not invest heavily in Government gilts.

He confirmed the fund is “diversified” and has a “wide range of assets”, while explaining how the public sector fund operates differently to private firms.

He told the meeting: “The issue is mainly related to long-dated index link gilts and the fluctuation in the price of those and, while the pension fund may have some of those, we are a diversified fund.

“We have a wide range of assets so there may be an impact [on the value of the pension fund] but it will be fairly small.

“What [private firms] have done is buy a lot of these long-dated gilts. The LGPS is an open fund, we’re active and we have very diversified portfolios.

“We don’t leverage, which some of these private firms do, and we have not engaged with these long-dated, index-linked gilts.

“We will be impacted by market movements, by some exchange rate fluctuations, and our valuation may be affected.

“But I can give assurances that what’s being seen now does not affect the LGPS or Nottinghamshire to anything like the extent it’s impacting some of these private sector funds.”

The Nottinghamshire Pension Fund, which is part of the wider local government pension scheme, is used by council workers across all nine councils.

It is currently valued at about £6.1bn, with roughly 300 contributing employers and 44,000 contributing members.

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