While councils across the West Midlands have been closing libraries, cutting youth services, reducing social care provision and shedding staff, another story has been unfolding largely out of public view.

It is a story of pension funds, investment managers, actuarial assumptions and eye-watering fees. It is also a story that we’ve spent years trying to drag into the daylight.

The latest, updated analysis highlighted by The Evidence Based Investor (TEBI) shines a spotlight on what may be one of the biggest public finance scandals hardly anyone talks about: £billions paid in pension fund management fees and £billions more extracted from local authority budgets through employer contributions that, we argue, were massively higher than necessary.

For most residents, pension fund accounting sounds like the sort of thing best left to actuaries and investment consultants. But we have banged on and on to try to show why it matters. That’s because every extra pound sent unnecessarily into a pension fund is a pound that can’t be spent on social care, parks, libraries, children's services, road repairs or community safety.

They are deliberately-created surplus pounds which will never be used to pay a single pension, ever.

And those pounds add up to staggering sums. According to the TEBI piece, estimates suggest that the UK’s Local Government Pension Scheme funds as a whole pay around £1.9 billion in investment fees per year while often underperforming simple market benchmarks. Yes you read that right: money for nothing and your "cheques" for free!

But as we have pointed out repeatedly, that's just England and Wales.

The Government's own SF3 returns figures for 2024-25 report total investment fees now at £2B in England and Wales. But it's £2.2B when you add Scotland's and Northern Ireland's. That's quite the annual payday.

And when you add other scheme Management fees, it was £2.7B, and we predict it will inevitably be £3B for 2025-26.

TEBI asserts, as we have asserted for the last 10 years at least, that it should be no more than 10% of that, saving the taxpayer £2 billion a year. But currently this £2B unnecessarily lines the pockets, instead, of investment bankers, every year.

The article points to longstanding evidence that expensive active management frequently failed to justify its costs. Even government-commissioned analysis concluded that active management generally didn’t deliver sufficient additional returns to compensate for higher fees.

For us, this is not an abstract debate about investment theory. Our research into the West Midlands Pension Fund argues that local authorities were simultaneously being asked to make extraordinarily high pension contributions while the fund itself was paying hundreds of £millions to investment managers. Councils across the region were effectively starving public services to build ever-larger pension surpluses.

The timing could hardly be more striking. Over the last decade, Birmingham and other councils have endured wave after wave of austerity-driven cuts. Day centres have been closed. Community services have been reduced. Staffing levels have fallen. Residents have seen visible deterioration in neighbourhood services.

At precisely the same time, we argue, the West Midlands Pension Fund was accumulating substantial surpluses while continuing to demand high employer contributions from public bodies at the same time; indeed, the highest in the UK.

Our argument is straightforward. If a pension fund is significantly overfunded (more money than it itself calculates is needed to pay all future pensions due) why continue extracting cash from cash-strapped councils at levels that force cuts elsewhere?

We have repeatedly questioned the assumptions used to calculate pension liabilities, arguing that overly-cautious projections have understated future and past investment returns and exaggerated funding gaps. The result, we argue, was a system that systematically transferred resources away from frontline public services and into an already healthy, wealthy pension fund.

Critics may disagree with aspects of our methodology, but the broader questions we raise deserve answers, and not for us to be slagged off publicly as “financially illiterate” by the ex (unelected) Birmingham City Council Chief Commissioner Max Caller

In particular:

Why were management fees so high?

Why did passive investment strategies receive so little attention when evidence increasingly suggested they could produce similar or better outcomes at a fraction of the cost? In fact, 90% less cost.

Why were councils being asked to make such substantial contributions when fund assets continued to rise beyond what it then needed to pay all future pensions due?

And perhaps most importantly: who was challenging these assumptions on behalf of taxpayers?

The comparison we cite is especially uncomfortable. We have contrasted the West Midlands Pension Fund with the West Yorkshire Pension Fund, arguing that the latter achieved stronger outcomes with significantly lower investment costs and a far greater reliance on internal management. If true, that comparison raises obvious questions about value for money and governance.

What makes this debate politically explosive is that pension contributions are not some obscure accounting entry. They have real-world consequences.

Every council budget is ultimately a set of choices. Money allocated to pension contributions cannot simultaneously fund social workers, youth clubs, libraries, street cleaning or adult care services.

And why should one council whose past and present employee profiles and current pensioner profiles are the same as another one have to pay so much more in employer contributions? And so have to cut services/raise council tax considerably more, compared to that other council?

And most councils are very similar indeed in these employer/pensioner profiles.

Residents have experienced those trade-offs directly.  The closure of facilities, reductions in support services and shrinking local government capacity have been justified as unavoidable financial realities. But at least part of that financial pressure was self-inflicted through pension funding decisions that proved excessively conservative.

The TEBI piece places this local story within a national context. Across Britain, growing scrutiny is being applied to local government pension schemes, active management costs and the influence of the investment industry. Questions that once lived only in specialist pensions circles are increasingly entering mainstream public debate.

That is largely because the numbers involved are impossible to ignore, when £billions are spent on fees, when £billions more sit in surplus, and when councils are cutting essential services.

People start asking whether the system is serving pensioners, taxpayers and local communities, or whether it has become a machine that primarily serves the financial industry.

The Pensions and benefits paid out from the Local Government Pension Scheme are legally part of a pension scheme, not a fund. And the right to those payouts comes from statutory regulations, just like those for teachers, NHS workers, the armed forces, the civil service, the judiciary,and other state employees.

Unlike private pensions, it is a statutory scheme, not a trust. It's just that employer and employee contributions are stored locally, not at the Treasury, as they are for the rest of the public sector. And they are allowed to accumulate through investments like an investment fund. The pensions get paid out by the council chosen (sometimes inexplicably) to be in charge of that locally-stored and invested sum. So even though Birmingham has the biggest council pension scheme in the country, Wolverhampton runs the scheme and the fund backing it.

So the councillors running those local pension funds have a public law fiduciary duty to council tax payers and taxpayers generally.

They also have a public law fiduciary duty to all of the taxpayer-funded employers in their local scheme (such as all state schools for non-teachers, FE Colleges, the police and fire services for non-uniformed staff) not just the Councils, who are now in a minority amongst the employers.

This is not the same as in a private sector pension fund where there are trustees running the fund and whose sole fidudiary duty is to the current and future pensioners and current employee contributors.

We assert Local Government Pension Fund managers too often advise the councillors running the scheme funds as if they were private trustees of an actual fund with a trust deed/instrument. They are not.

They are scheme funds, not trust funds. And the taxpayer has as much of an interest in them as current contributing employees and pensioners.

Where local incompetence has led to surpluses (the overriding job of the administering council is to keep the fund in balance with all future pensions due, and specifically NOT to allow surpluses) then those surpluses are public assets, to be returned. Returned primarily through reduced (and even negative) employer contributions.

Current employees and pensioners have no legal or beneficial interest in the surplus. Hence the public law fiduciary duty to the taxpayer by the administering council's councillors on the Pension Fund Committee. This is rarely impressed upon them.

In a few weeks time we are likely to find out that the West Midlands Pension Fund has an almighty funding surplus of £6 billion, £1.7B of which is owed to Birmingham employers.]

We will continue to pose these uncomfortable challenges. These have been shrugged off by Birmingham City Council, its government-appointed Commissioners, and the West Midlands Pension Fund.They have never been properly addressed or countered, ever.

This is not an argument that pension promises should be weakened, or that these pension scheme funds should take reckless risks. But rather it’s that public money should be managed with far greater transparency, accountability and regard for the communities from which it comes.

The central question is simple. If local residents are losing services while pension funds are amassing surpluses and paying vast sums to investment managers, has the balance gone scandalously wrong?  The answer matters not only for Birmingham and the West Midlands but for every local authority in Britain.

Because at a time when councils claim they can no longer afford basic public services, taxpayers deserve to know whether billions have been locked away unnecessarily while their communities pay the price.

That is the debate we have forced onto the agenda. And it is a debate that is becoming increasingly difficult to ignore, especially for the new coalition council in Birmingham which is keen to make a fresh start.