In a devastating report to Parliament, Sir John Bourn, the Comptroller and Auditor General, also warns more than 150 public-sector funds - controlling investments of pounds 100bn - to ensure they learn the lessons from the debacle.
The crisis-racked pension fund was one of three funds set up by the Conservative government as part of the privatisation of the water industry. The newly- privatised water companies' pension funds got pounds 1.2bn in cash and shares, for 50,000 members in new employers' schemes; pounds 221m went into a scheme for 10,000 employees of the National Rivers Authority (NRA); and pounds 812m went to the 39,000 former employees who were left over.
This last scheme - the "closed fund" - got the worst deal, the poorest assets, and the problems, for which the taxpayer will pick up the bill.
Following examination of the events surrounding the creation of the industry's new pension schemes, Sir John's National Audit Office called on the Government to clear up the mess, ensuring benefits for the pensioners "while minimising the extent to which the taxpayer will have to fund any deficit".
But his report leaves two holes: the guilty men are not named; and in spite of the investigative might of the National Audit Office, which is allowed complete access to officials and files, the charge-sheet contains no categorical indictment.
By the end of March last year, the deficit in the problem fund had shot up from pounds 120m to pounds 419m.
Sir John says that when the water industry was privatised, it had been necessary to split up the old Water Authorities Superannuation Fund three ways. The report suggests strongly that the poor-relation fund, which was also run by the NRA, got the assets no one else wanted, including equity of pounds 102m in Great Portland Estates - in potential breach of a rule that no pension fund should keep more than 10 per cent of its assets in unquoted securities. It was also handed a pounds 27m stake in Charterhouse Estates Ltd, established in 1988 by the old Water Authorities Superannuation Fund and an unnamed "private entrepreneur". That company went bust in 1992.
The report criticised the NRA for appointing Queen Anne's Gate Asset Management Ltd as investment managers for the fund - without competition - because they had managed the old water authorities' scheme, and they had helped to divide the assets between the three pensions funds.
In today's report, the Government Actuary's Department blames the "closed fund" losses on a pounds 100m fall in the "unbalanced" investment portfolio, and a pounds 160m investment "under-performance", compared with investment returns on pension funds generally.
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