£7.8m from pension pot lost on property

7:00am Friday 14th November 2008

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AN “APPALLING” £7.8 million has been lost from the pension pot of public workers in Dorset after a “risky” investment, councillors heard.

It was announced at a full meeting of Dorset County Council that a £7.8m investment on a property in Wood Street, London, was now valued at zero after property prices plunged.

This comes after the Icelandic banking crisis where Dorset could stand to lose £28.1m after two banks went into administration.

The Dorset Pension Fund serves more than 80 public authorities in Dorset including the borough and district councils, Dorset Police, schools, Dorset Fire and Rescue Service and housing trusts.

County Councillor Richard Biggs brought up the issue at the full council meeting and said that previous reports about the investment just stated that the investment was ‘disappointing.’ He said he was “appalled” at the news that the money has been lost.

He added: “I think saying it was ‘disappointing’ was merely a smokescreen because now we have found out there will be no return.

“They put people’s pension money into a risky investment and I only found out by delving into minutes of meetings.

“And to dismiss the £7.8m saying it was part of a huge pot of money is appalling. Some of the money we lost to the Icelandic banks was pension money too.

“We can’t afford to keep making these mistakes.”

A £7.8 million mortgage was taken out in 2006 to contribute towards the total £219m cost of the London property. It was hoped that £2.5 million could be recouped from a prospective buyer of Dorset’s share in August but the deal fell through.

Chairman of the Pension Funds Committee Cllr John Lofts said: “Since July the property market – in particular the central London offices market– has deteriorated significantly and as a result of this the potential purchaser of the Wood Street property has withdrawn.

“The result of the Wood Street purchaser pulling out means the investment is now valued at less than the amount of debt.

“As a result the pension’s fund investment in Wood Street is now valued at zero – with little potential for any future value.”

The £7.8m share of the £219m property was invested in 2006 and the other owners were three other pension fund investors, including two other councils.

In order to purchase the property all the owners took out a mortgage from three separate banks to raise 75 per cent of the purchase price.

The council still has the property but the value has dropped and the council still has the mortgage to pay off.

Cllr Lofts said that when the money was invested two years ago it was “a whole different world”.

The pension fund is approximately £1.25billion, and 10 per cent of the council’s pension fund is invested in property.

Head of finance at the county council Paul Kent said that they will know if Dorset will receive any of the £28m in Icelandic banks on November 21. Interest due on the £28.1m has been calculated at £985,309 and approximately £570,000 of this is due to the county council and £415,309 is due to the Dorset Pension Fund.