"Pension schemes need urgent rule change"

Catching up after annual leave last week. Just read Janice's important letter on pensions published in the Guardian on 25 July.

"Phillip Inman's welcome report on the dire state of private sector pensions (No wonder ministers are panicking over pensions, 23 July) nevertheless omits one major reason for the horrendous deficits of defined benefit (ie final salary and career average) pension schemes: a couple of clauses buried in the 2005 Pension Regulations. The clauses force defined benefit schemes to conduct valuations using methods derived from free market theory: basing scheme projections, decades into the future, on the state of the markets on one day. If the markets are fine, the pension fund is fine. If not, schemes are in trouble. These rules have caused wild volatility: no one has a clue about how big their deficit will become. Last year the Pension Protection Fund reported DB schemes' combined deficits as £8.3bn. A few weeks ago they passed £300bn.

The Association of Member Nominated Trustees, whose members are trustees of pension schemes with collective assets of about £200bn, says DB schemes must be enabled to ride out short-term market volatility by smoothing the valuation – taking an average of asset values and gilt yields over several years. The PPF has adopted this method for itself. What's good enough for the PPF is good enough for the schemes that fund it. The AMNT has submitted rule changes to the Department for Work and Pensions, and our views are shared by organisations such as the CBI and the National Association of Pension Funds.

This may sound like a dusty technical issue. But what's at stake are the pensions of more than 2 million working people, and the chance for the millions coming after them of having a decent pension.
Janice Turner
Co-chair, AMNT

LGPS 2014 ballot - Vote YES to protect your future (& ignore the miserablists)

From UNISON eFocus today. There will be a ballot on the new proposed Local Government Pension Scheme 2014.

UNISON members who work for my employer and in my branch have voted overwhelmingly in favour of accepting the deal. This will keep a world class guaranteed pensions scheme for all and stop the discrimination of low paid women in favour of highly paid senior management and Chief Executives.

The ballot will start on 31 July and last until 24 August. You can also vote on-line.

While there are some who have genuine reservations about the proposal, there is also a miserablist opposition who are simply mischief making and doing all they can to distort and undermine the new scheme.

Through our arguments, campaigning and collective action we have defended the LGPS and retained a world class guaranteed defined benefit pension scheme. 

Some people simply don't know how to quit when they are ahead!

Co-op keeps DB pensions for 100,000 staff

Well done to the Co-op for keeping open its Career Average Defined Benefit Pension scheme for its 100,000 employees. 40,000 of whom are not members at the moment and are eligible for auto-enrolling. Gary Dewin, director of pensions for the group, said:“The scheme is a fantastic recruitment and retention tool. We wanted to stand up and look like we were an employer of choice.”

The Co-op scheme is 96% funded and I think helps proves the lie that there is no future for DB schemes.

The retail sector seems to be taking a lead in providing decent pensions for its staff. I posted on Morrison’s "bucking the trend" on DB last week. While recently I went to a pension meeting and met a trustee from the John Lewis (Waitrose) DB scheme which is not only still open but also still non contributory to employees!

Why the financial services industry can be so corrupt (and yet so smug?)

Amidst the current media fury about the Barclays Bank LIBOR fiddle and the latest miss- selling scandal to small businesses, the only thing that really astonishes me is the shock and horror about what has gone on?

Already we have excuses that this was a “one off” or “all the fault of the last government” as well as it’s just a few “rogue traders”.   Rubbish. It is not.

Does everyone forget already that we are in the worse recession for 60 years due to either fraudulent or at best reckless behaviour by Banks and financial institutions?

Barclays Bank has been ripping off its customers for years, it not for decades. Does no-one remember the Personal Pension scandal during the 1980’s and 1990’s? When Barclays (and practically all the other Banks and life assurance companies) persuaded its loyal and but completely naive customers to  come out of their guaranteed Company defined benefit pension schemes and buy their expensive personal pensions? When people wanting short term saving plans were sold 25 year life insurance endowment bonds?

When, very like the current debacle over small business interest hedges,  the Banks instructed all their retail staff that they had to make so many sales a week of these products or they were in trouble. All senior management knew exactly what was going on since it made no financial sense whatsoever for anyone to leave their company pension scheme.  But they did nothing to protect their customers nor ultimately their shareholders who had to pick up the bill for compensation. These corrupt practices are due to widespread bad company and industry wide governance.

Yet time after time, whenever I go to governance conferences and meetings, we are told how wonderful UK governance is especially compared to the rest of the world (Which is probably true but if so, then God help the rest of the world). When sensible proposals are made to improve corporate behaviour and governance such as the compulsory publication of Company AGM voting by fund managers or putting employee representatives on remuneration committees then they are too often simply dismissed - often sneeringly.  

This frankly smug and self satisfied attitude has change.  The UK financial services is very, very important to the UK economy. We can argue that maybe it is too important which is another matter. But at the moment it is responsible for 10% of our tax take, employs hundreds of thousands of workers and is the main source of finance for our economy.

While there is some very good people work in finance there is not enough of them to stop us, the principles who own assets (such shareholders in pension and insurance funds) being robbed off by the agents, we employ to look after our assts. 

Cosy crony remuneration committees must stop. Shareholder votes on pay at company AGM’s should be binding and compulsory. Retail and investment banks should be separated to stop casino capitalism.  The Government should retain a significant shareholding in the Banks we own at the moment and we should buy shares in those we do not own.  Better regulation is not enough we need a state holding not to run the Banks but to try and make sure that they are run by grownups who will act in the long term interests of shareholders and customers not the selfish short termism driven by Bollinger Champagne dudes.

The massive life insurance funds and Mastertrust pension schemes which have no beneficiary governance at all should have a trustee structure set up to ensure that they are not being robbed either.  Doing so would help put UK PLC in order as well. 

Finally fraudsters should be brought to book and locked up as well as those higher up who turn a blind eye to matters in order to ensure their own well paid positions and bonuses. Anyone making a deception in order to gain a pecuniary advantage is guilty of a serious criminal offence while aiding and abetting any criminal offence is a crime as well.  These people must be dealt with in the same way we treat rioters.

Rant over. Hat tip great cartoon by Steve Bell from The Guardian

More reasons to shop at Morrisons? DB Pensions!

The Pensions press seem to be astonished that the supermarket giant Morrison's is still going to offer a defined benefit pension (DB) scheme to its staff when auto enrolling begins. Now the "cash balance" scheme they will be offering is not that great, but as "Professional Pensions" points out it has bucked the trend away from DB schemes and "runs contrary to the predominant theory that the decline of defined benefit provision spells doom for retirement incomes".

So well done to Morrison's who seem to be proving that they actually are a company that does pride itself on its business ethos. They obviously do not want their 115,000 employees to end their days dying in abject poverty.

Unlike their so called "ethical" rivals methinks?

Modern Defined Benefit Schemes are as valid and affordable now as they have ever been.

AMNT open meeting to members next Tuesday June 20

Association of Member Nominated Trustees. There is an open meeting of the AMNT next Tuesday 20 June at AXA Investment Managers’ London offices, 7 Newgate Street. London. Starting 1.30pm (sandwich lunch beforehand) and finishes 5.30pm (followed by drink and nibbles).

AMNT member and chief executive of Fair Pensions Catherine Howarth will give a presentation into the ‘Shareholder Spring’ and what it means for trustees.

Jonathan Bull of OPDU will also give a talk on the types of insurance available to trustees and what MNTs can to do to limit their own personal risk.

Followed by a report from the AMNT committee and breakout sessions on member concerns.

I have drafted a paper for the AMNT on "what to do if your employer wants to close your Defined Benefit Scheme". Which may be discussed either this meeting or the next. I'm at the UNISON conference next Tuesday so can't make it.

Find out more about the AMNT and join here. Email mail@amnt.org to apply if you want to attend.

LGPS 2014: The Future of the British Sovereign Wealth Fund?

Yesterday there was an announcement that the trade unions, the LGA and the Government had come to an agreement on new proposals for the Local Government Pension Scheme (LGPS) in 2014.

If you are not in the LGPS bear with me, since this is an important issue.  The LGPS has assets worth over £145 billion and collectively is the biggest pension fund in the UK and the 4th biggest in the world. It is a major shareholder in Britain and the world economy. Arguably it is the British equivalent of a Sovereign wealth fund. Over 4 million Brits are members of the LGPS with 1.6 million active members in England and Wales alone.

Why I understand that there are a lot of people who have genuine fears and concerns about these proposals there is also a lot of old nonsense being put out by the usual suspects who should know better and are just scaremongering.

I'll use a comment in a post I did yesterday from the "we don't care how good this offer is we just want to go on strike all the time to bring about the revolution" brigade to illustrate what I think about the proposals.

I will say this is early days and once we have been properly briefed on the offer and given time for it to sink in I will probably post again. Please note that is my own summary and interpretation and no-ones else's.

Q. Are we paying more?
A. No, average contribution remains at 6.5% gross.  Some part time workers may well pay even less. Those earning under £43,000 per year will pay the same while those who earn more will pay a little extra but after tax relief even those who earn over £150,000 will still pay less than 7% net. At long last if you have financial problems you will be able to reduce your contributions by 50% (with reduced benefits) until things improve rather than just pulling out.

Q. Are we getting less out?
A. No, the majority of members will get more out of LGPS 2014 than the deal in 2008. The accrual rates is far better. It is also a more valuable and better scheme. Especially for the low paid. For too long we have allowed a small number of very high earners to milk our pension scheme for their own benefit. For the first time workers will also build their pensions on non contractual overtime and allowances. A real improvement to those who rely on such money.

Q. Are we working longer?
A. Yes, in line with state pension age. Many of our members earn so little that they will not be able to retire without the state pension in any case. Remember we're living longer. It's supposed to be a good thing. In return we get a world class guaranteed pension scheme. There is also a 10 year protection. There also may be scope for members to "downsize" when they are older into less stressful and demanding jobs under Career Average than Final Salary

In many ways this is unfinished business from 2008. There was no agreement reached back then about future cost sharing over longevity. It had to be sorted sooner or later. Final Salary was always unfair to the mass of our members when compared with a decent Career Average scheme. We also never could agree with the need to modernise, get meaningful member representation and consider merger to deal with the 101 different ways that the financial services industry rips us off (i.e 101 separate LGPS funds).

What I really hope is that LGPS 2014 can be an an affordable and sustainable model for pension schemes that the millions and millions of public and private sector workers who don't have any access to such security in old age.  If we don't get such a model established in the private sector then the public sector schemes will always remain vulnerable.

What happens next? We ballot. Let the members decide.

Molins to Workforce: give up your pension...or else!

It was another bad week for employees last week. At around the same time that the Conservative hedge fund multi-millionaire and sponsor, Beecroft, published his report recommending that companies should be able to sack their employees if they don’t like them, Molins, a FTSE listed UK engineering company was found to have threatened its workforce with the sack if they don’t leave their pension fund!

They decided to close their scheme but their trust deeds did not allow it. So they have issued a section 188 notice to the government saying they are intending to dismiss everyone and then offer to re-engage them on condition that they do not join the pension scheme.

Molins claims that that they cannot afford to run its existing defined benefit scheme. Which is rubbish. It is making good profits and is financially secure.

Pension’s Week suggest that there may be a problem with attracting investment but that is not what they are telling their workers. I think it is just cost cutting and they want to cut the wages of their employees with a substandard pension contribution which will not be enough to give their workers enough money to have security and dignity in their old age.

I gave a statement to “Pensions Week” (part of the FT group) as Chair of the AMNT Working Group to defend and promote Defined Benefit Pension schemes. Part of which they quoted

“This is a test to the 2006 pensions regulations, which quite clearly state an employer’s consultation with the workforce has to be meaningful,” said John Gray, Association of Member Nominated Trustees (AMNT) committee member.

“Molins appears to in breach of its own ethics policy. Threatening to sack their staff in order to get out of providing them with a decent pension does not appear to us to be anything like the highest standards of ethical behaviour.”

The AMNT has launched a campaign to support trustees of DB schemes under threat of closure.

What Molins has got to realise is that closing their pension scheme will not make their liabilities disappear. It could make things much, much worse.

Current Pension deficits are worked out using a completely artificial and discredited accounting standard called “mark to market”. Due to a double whammy of recent exceptionally low fund management returns and a 200 year low in the yield of gilts make things appear far more negative  than they actually are.

Not only that but if you panic and close your scheme in response to these meaningless figures then the company faces having to pay even more into the scheme since the fund rapidly becomes cash deficit and has to invest into low yielding bonds and gilts with no equity premium.

Ironically last week I goggled “Molins” and “Pensions” and came across this story from "The Independent" business pages in 1992. The Molins pension scheme was then in surplus by £90 million.

The company was trying to take out £18 million out of the pension scheme to cut company debt and fund acquisitions (and increase benefits). I don’t know if were able to take this money out of their scheme but if they did what would have been the scheme funding now if they did not take out £18 million in 1992?

(NB to be clear this post is my own and not necessarily the views of the AMNT)

UPDATE: Professional Pensions has a good article on this case here

National Association of Pension Funds Local Authority Conference 2012

This was very informative and well organised conference taking place during an absolutely crucial time for the future of the local government pensions scheme (LGPS). I was there as a Councillor and member of the Borough LGPS Investment and Accounts committee.

I did “twitter” (in my case a very apt term?) during the conference (see hash tag @grayee and #napf).
The NAPF had amongst many other speakers the minster responsible for the LGPS, Bob Neill MP, the Deputy Governor of the Bank of England, Charlie Bean; the Chair of the Local Government Association, Sir Merrick Cockell (who in a Q&A I referred to as “Michael”) and from the unions, GMB national secretary Brian Strutton.

The Chair of the NAPF is Joanne Segers. By coincidence the first ever trade union pension course I ever went on was delivered by her father, TUC tutor Terry Segers. Proper old school ex-fire brigade union.

Considering the number of forthright and opinionated individuals present at the conference, the Q&A sessions were quite quiet, which gave a opportunity to a certain gobby part time politician and union rep to somewhat hog the floor during questions.

Key issues to me from the speeches and seminars were:- how Housing associations are “gagging to build new homes” which if happened could help us get out of recession like it did in 1930’s; the real problem in pensions is not in the public sector but that private sector pensions were destroyed by various incompetents; if you truly want diversity on company boards why not have employee reps on them? Are fund advisers really interested in good governance and making company boards accountable? It’s a “no brainer that LGPS should share services" (if so why not just merge?); in the current LGPS if you earn £150k per year you pay less in percentage terms net than if you earn £15k pa (this is wrong, wrong, wrong); What is the collective term for Actuaries? Answer “An invoice”; the new proposed £2 billion infrastructure fund and LGPS governance (a possible national Local Government Pensions Board?)

There was clearly an expectation by speakers that the future of the LGPS negotiations would have been finalised by now. But there is some last minute hic-cups. This is immensely frustrating but I suppose they do want to make sure, as far as possible, that there is no misunderstanding or ambiguities about the “agreement”. The ultra left trade union cry babies (the so called 0.8%ers) are of course still weeping tears at the prospect of no more strike chasing to bring about the revolution but we should have the final offer very soon.

It was good to see at the final session that the conference applauded DCLG pensions lead, Terry Crossley, who is retiring from the civil service. I have crossed swords (politely) with Terry for the past 10 years or so over beneficiary representation on the LGPS. I wish him well in his retirement and told him that if a deal is reached on a new look LGPS then he should have a new part time job and go out and sell the model to the private sector who are in desperate need of affordable and sustainable defined benefit pension schemes.