The woefully inefficient Local Government Pension Scheme could be reformed to save the taxpayer nearly £1bn a year, the Centre for Policy Studies think-tank has claimed.
The LGPS is made up of 101 funds, which the CPS said were 'sub-scale', 'opaque' and burdened with excessive costs and lax governance. All funds are underfunded with an average funding ratio of 77% in England and Wales and 94% in Scotland, the CPS said.
It claimed that some having to consume their assets in order to meet pension payments: 'They are beyond the point of no return, in a death spiral, heading to an unfunded status.'
A comparison between funds found stark variations between costs. Fund administration costs per member range from £13.70 a year in Nottinghamshire to £139.40 a year in Durham. Investment management costs differed too, ranging from £7.60 per member in West Yorkshire to £317.30 in the City of London.
There was also a strong negative correlation between administration costs per fund member and fund scale. Larger funds had lower costs, the Right-wing think-tank said.
Report author Michael Johnson said that by drawing on some of the practices used by the world's most efficient public pensions funds, costs could be cut by at least £860m a year.
Johnson said: 'Costs are controllable, whereas investment performance, by and large, is not. This necessitates structural changes and could help secure the future viability of the LGPS.'
He made ten proposals that would between them improve transparency, redesign investment and facilitate fund mergers.
CPS director Tim Knox added that badly managed LGPS funds were bad for both local government employees and for taxpayers.
He said: 'Grouping small funds together, while preserving competition, will achieve both substantial savings for the taxpayer and better pensions for council employees.'
But public sector finance experts queried the timing of the report, noting that many of its recommendations were already being considered by the LGPS shadow scheme advisory board.
Nigel Keogh, pensions manager at the Chartered Institute of Public Finance and Accountancy, said: 'Far from being in the difficulty suggested, the LGPS has over £200bn in assets and continues to have a positive cash flow.'