Concerns over whether tobacco investments are “ethical” could lead to pension uncertainty for hundreds of public sector staff in Perth and Kinross.
Councillors have been asked to consider whether the Tayside Superannuation Fund should disinvest the cash it has tied up in stocks with firms such as Imperial Tobacco and Philip Morris International.
The money currently around £28.96 million of the near £2 billion fund supports the pensions of contributors including council workers in Perth and Kinross, Angus and Dundee, as well as employees of universities, arts centres and local authority leisure centres.
The issue has also previously been raised at the Dundee and Angus councils.
Scottish Government guidelines require public sector pension schemes to take ethical and social factors into account when making investment decisions.
And with smoking contributing to around 13,000 deaths in Scotland each year, health campaigners have said the investments are at odds with schemes to promote healthy living.
Withdrawing pension cash from tobacco investments could, however, be a tricky process and one that if handled incorrectly could cost it and its employees dearly.
Perth and Kinross Council has been advised that without tobacco stocks the value of the fund would have suffered by £32m over the past five years.
In addition, the volatility of the portfolio would have been increased as tobacco stocks are traditionally more stable than others.
Investing in other industries could therefore have been more “high risk”.
Finally, the council has been told that disinvesting in tobacco shares if not adequately replaced could result in the employer having to increase its contribution to pensions.
The estimated 3.1% increase from 18% to 21.1% would equate to an additional cost to the council of £2.519m per year.
Two contrasting legal opinions from senior UK QCs have been provided to the local authority for consideration.
The first is of the opinion that the fund has “power to withdraw from investments which it considers are not ethical”, though its author warns of the need to carefully consider the implications of such a decision.
The second opinion states that “the power of investment must be exercised for investment purposes and not for wider purposes” in essence that the best financial position of the fund should be paramount.
Given the “contradictory” counsel opinions, senior council officials recommend that no decision to disinvest be undertaken without first identifying “alternative investments of comparable value”.
A report compiled by the council’s chief accountant Scott Walker and legal manager Geoff Fogg states: “At this time officers of the TPF are unable to recommend any other investments which would deliver this objective without materially affecting the volatility of risk and return.
“The information obtained indicates that a decision to disinvest from tobacco stocks in the absence of an identified appropriate alternative would result in a significant increase in the council’s employer contribution rate.”
They are recommending to councillors that the council back a move away from tobacco only if the TPF finds suitable alternative investments.
The issue will be discussed by members of the council’s strategic policy and resources committee on Wednesday.