Earlier this week Boris Johnson, Mayor of London, unveiled his controversial plan to merge all public sector pension funds. Johnson wants to amalgamate 101 local authority funds together with the rest of the public sector pension schemes and invest the resulting "gigantic sovereign wealth funds" in the construction of infrastructure that UK "is crying out for".
However, IPE argues that the 39,000 public sector pension schemes quoted by Johnson are all practically unfunded (i.e. without any assets to invest). They rely on the pay-as-you-go model: once an employee retires, the pension is paid out of current earnings, without any money being set aside in advance.
IPE stresses that pension schemes are supposed to cover retirement needs – not to stimulate economies or finance construction activities, however sorely they might be needed. Especially when the returns and costs of investments into infrastructure fail to make a convincing case.