Local government pension schemes could save up to £790m a year in investment fees by using passive instead of active management, the Minister for Local Government has said.

Brandon Lewis said analysis has shown that active management is “simply not delivering value for money”. Referring to analysis by Hymans Robertson, Lewis said switching to passive from active management could save £230m a year in fund manager fees, plus £190m in transaction costs.

“The evidence in their report makes clear if the funds, bonds and equities had been invested entirely passively, there would have been no impact on the scheme’s overall performance and potential fee savings would have been made,” he told the NAPF Local Authority conference in the Cotswolds.

“Investment costs have been increasing year on year, from £340m in 2010/11, to £409m in 2012/13. The report shows that, in practice, this is likely to be substantially higher, up to around £790m a year when taking into account the hidden costs of investment as well.”

Earlier this month, the government proposed “ending the use of ‘funds of funds’ arrangements in favour of a common investment vehicle for alternative assets” in a bid to save the Local Government Pension Scheme £660m a year over 10 years.

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