TUC Trustee Conference 2011: Saving Capitalism

The presentation was actually called "How funds can benefit from dysfunctional markets - and help save capitalism".  You might enjoy the irony of someone speaking at a  TUC event about saving capitalism - but I couldn't possibly comment.

The speaker Dr Paul Woolley is an interesting bloke. A former stockbroker, fund manager and economist at the IMF. He is now a Senior Fellow at the LSE and set up his own research team there on "Dysfunctional markets". I believe he has funded this on the large amounts of money he made as a fund manager. 

He argues (convincingly in my view) that there needs to be a Revolution to save Capitalism. There are too many "bubbles and crashes" which ends up with fund managers being more wealthy than investors. Vast profits are made by the financial sector and not by shareholders. There is not mild inefficiencies but fundamental problems. Woolley talks about "Principles and Agents". Pension funds and shareholders (Principles) are basically ripped off by our financial services (Agents) who capture "excess profits". Fund managers are paid whether or not they do well. This is a moral hazard and results in bloated... short term-ism and instability. Regulation will not work since the Government is in hock to the financial sector. It is down to us (pension fund trustees and the like) to stop the abuse of our capital. We need to incentivise the UK industrial sector and shrink the financial. Say No to performance fees and No to any alternative investments which rarely delivering superior returns and can be cons. We need total transparency, full disclosure and the monitoring of all charges. Unless this happens it will mean the end of market capitalism. 

In the Q&A I asked him a question that since it would appear that many financial service interests are against us, whether it would be best for large funds such as the Local Government Pension scheme to employ directly their own advisers and fund managers (Australian model)? Paul was broadly supportive. He later finished by telling us that many of the current free market theories are "duds" and future generations will think we are off our rockers for believing in them. 

After the TUC Pension conference I went to a Guest lecture at the House of Commons organised by Fair Pensions by Keith Ambachsteer called "Can Pension Funds Shape the Future of Capitalism? Yes, we can!" Which I will post upon another day.

I also heard Paul speak at the LAPFF conference last month in a presentation called "What Pension Funds should do now" and make similar hard hitting arguments. Since then I have heard the ABI and others make similar arguments about us Principals being ripped off by Agents. I have brought up the issue at two different pension fund trustee meetings. This whole important debate (I sincerely hope) may finally have legs.

TUC Trustee Conference 2011: Auto enrolement

Catch up from last month's TUC Pension Trustee conference "People & Profits".  I went to a useful workshop by the Pensions Regulator on "Auto-enrolment and workplace pensions reform - the role of trustees".

I don't think (in fact I am pretty certain) that many people realise that in a year or so, if they are not in a pension scheme, they will be compulsory enrolled into one. Employees, employers and the government will have to make minimum payments. Employees will have a month to come out. However, many think that due to inertia they will not "opt" out. This is good news on a number of levels. Currently 2/3rd of private sector employees receive no pension contribution whatsoever from their employers. While 50% of workers in the private sector have no pension provision at all. These workers face desperate poverty in their old age and taxpayers will have to pick up the bill for basic social security.

It's not all good news.  The contribution levels are very, very low. 3% employer, 4% employees and 1% tax relief. 8% of your income in pension contributions is no where near enough to get a decent pension.  The old pension adage use to be you that to get a pension of half pay and a lump sum you needed to have the equivalent of 20% of your income invested for 40 years. There are also a number of exemptions. But it is a start. 

There is also a legitimate fear that employers who currently pay more into pension schemes might level down.  Some people opposed the introduction of the national minimum wage for the same reason that it would depress wage rates but this didn't happen. I am more worried that employers who currently only have say 50% of employees in their scheme may cut back on contributions because the total bill will rise if 75% are now in (or introduce a two tier pension scheme for existing and new scheme members).  The Unions need to be wide awake about this risk. 

I also spoke at a recent UNISON Community Service Group Executive meeting and at last week's NEC about the organising opportunity that Auto-enrolment gives us.  The unions must be at the centre of all what is going on.  The greater the density and the organisation we can achieve - the better the final pension deal.

Of course for the public service pensions schemes, if members have to pay 50% more in  contributions (nearly 10% of their income) after years of pay cuts, as well as retire much later and get less, then existing members, never mind the new ones will simply walk.  They will leave the scheme in droves and the schemes will become unsubstainable and collapse. The Local Government Pension Scheme (LGPS) will turn from being cash positive to cash negative in a few years and all Council finances could be completely and utterly shot to pieces.

TUC Trustee Conference 2011: Fiduciary Duty for Trustees

This is from last weeks TUC Member Trustee Network Annual Conference at Congress House.  I missed the morning session due to regional meetings.  Which was a shame.  Especially the

Steve Webb MP (Minster for Pensions) keynote address.

I came in during the end of the panel discussion on "Fiduciary duty for Trustees". Which in the exciting world of pensions is a "hot topic". It use to be the case that Pension Trustees were told that they could not consider any other investment issues except maximising financial returns. This has recently been turned on its head.

As panel member,Thompson's solicitor Ivan Walker put it, there could be a breach of your duties as a trustee if you do NOT consider environment, social and governance (ESG) issues. Will Oulton from Mercer pointed out how many companies boast about their Corporate ESG activities yet when you ask them about their company pension fund ESG you get blank looks.

Christine Berry from Fair Pensions asked trade union pension trustees to reclaim their funds from outdated dogma which suits the interests of the financial services industry. I'll post further on the conference when I can.