"Pensions people can trust"

This post is just a little bit late but I was away when the Labour Party and Ed Miliband launched its policy review document on pensions last

month and I am still catching up on things.

I thought the review was pretty good and was pleased that the Party recognise that not only are pension policy holders being ripped off in charges but one of the most obvious solutions is that all pension schemes should be "Trustee based". 

This would mean that schemes are looked after by representatives of the beneficiaries who have a financial stake in their scheme and therefore a real fiduciary duty to their fellow pension scheme members. Most company defined contribution schemes are run by pension or insurance companies and have no trustee representation at all. These schemes tend to be run in the interests of private companies and their shareholders, not pension policy holders. No wonder in so many cases they get such a rotten deal.

The review was not perfect. I was disappointed that the review did not mention any positive measures to protect and encourage defined benefit schemes. It did put its finger on the major pension challenge. The complete and utter lack of trust by the British public in our financial institutions.  Who would blame them for this? Since all the evidence is that for at least the last 30 years most have at best ripped off and at worse defrauded savers. The latest loan protection mis-selling scandals and LIBOR fixing shows it is still going on. Things need to change. 

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.

Why you should join your company pension scheme NOW! (it's use it or lose it)

It's a no brainer actually (apologies to Homer Simpson whose scan in on right does show he has a brain although it is very small and rarely used e.g tax payers alliance supporter). There are millions and millions of workers in the UK who have access to a pension provided by their employer but they have not joined the scheme.

Sometimes it is because the scheme is pretty rubbish and that there are no real incentives given by the employer to encourage their staff to join. Yet often this is not the case and workers are losing vast amounts of money each year by not joining.

The 25% apparently eligible to join the Local Government Pension Scheme (LGPS) who haven't are losing at least 14% of their wages each year. They also even pay more income tax and national insurance.

However, the real people at risk from not joining their scheme NOW are in defined contribution (aka Group stakeholder or personal pensions) company schemes whose employers pay reasonable contributions if the members also pay something into it. Many of scheme are pretty good. Not as good as say the LGPS but nothing to turn your nose up upon. Decent employers know that any decent pension will cost a lot of money and they have to play their part in providing funding.

The risk ironically to these "decent" schemes is the introduction of pension autro enrolement next year. Enrolement is a "good" thing and will mean that nearly all workers in the UK for the first time will be automatically put into a pension scheme.  What is worrying some employers is that this may mean that the total bill for pensions will rise. If auto enrolling works (and there is some doubt) then instead of 25% of the workforce being in the company pension scheme this may rise to say 50% or more. Potentially doubling the pension payroll.

What many people fear is that some companies (including ones that use to provide non contributory final salary schemes free to all their employees in a more enlightened age) are planning to either slash and burn existing contribution rates or introduce 2nd tier pensions for employees who have not joined the existing scheme. We need to oppose all attempts to reduce contributions. The more in the scheme the more difficult it will be to cut it.

This is a call to arms to all union reps to "encourage" (we cannot give specific individual financial advice) our members to consider joining their scheme.  If they don't, it may not be around much longer. Use it or lose it.

AMNT Presentation to Irish Banking Trade Association

Yesterday, during a visit to their headquarters in Dublin, Janice Turner, the Joint Chair of the Association of Member Nominated Trustees (AMNT) and I gave a 45 minute presentation to the Irish Bank Officials Association (IBOA) National Executive Committee.

The IBOA represents 22,000 finance workers in the Republic and Northern Ireland. It has has been very supportive of the AMNT and its lay pension trustees NEC have played a key role in our growth. Their members are in Defined Benefit (DB) and Defined Contribution (DC) pensions schemes.

Being finance workers they are acutely aware of the value of pensions and the threats that all their schemes currently face. The employer pension "promise" and "covenant" is under attack. For example the UK regulated Banks suffer from unnecessary and damaging accounting standards while in the Republic there is also no equivalent of the Pension Protection Fund (PPF).  This needs to be challenged.

I think that the IBOA committee members and officers appreciate that the AMNT is the only organisation that is run solely by member nominated pension trustees who want to not only defend and promote DB but also want to improve all DC schemes as well.

At some point in the future it would make sense to try and organise local pension training and briefings by the AMNT outside London. 

Many thanks to the IBOA for the warm welcome and hospitality they showed to us during our visit.