TUC Trustee Pensions Conference 2010: “Shareholder Resolutions”

This post is yet another very late "catch-up".  The  annual TUC Pension Conference is the "Trustee" event of the year.  It was held at Congress House in London on 22 November 2010 and was packed out.

I missed most of the morning due to a regional committee meeting and came in during the end of the Stewardship Panel Q&A. 

I then went to a workshop on “Shareholder Resolutions” led by Tom Powdrill from PIRC, the notoriously shy and retiring UNISON National Capital Stewardship officer, Colin Meech and Unite National officer, Jack Clarke (see above left to right).

Tom explained that in December 2010 fund managers must explain why not or publish their voting record at the AGM’s of the companies whose shares they “hold” on behalf of investors.

To be able to table a motion at a British AGM you need 5% of total voters or 100 x £100 nominal value (Nominal £10k). You must table this motion within strict time limits to prevent the company charging you the full costs of circulating details of your motion.

There have been 8 Environmental Social and Governance (ESG) motions in the last 5 years. Mostly led by trade unions. Warning that many companies see such motions as a confrontational tactic. So you should try and make it appear constructive? Not "anti-company". Instead of appearing to give instructions make suggestions. However, direct motions may well be the only realistic option if companies are being unreasonable. To get the vote out you must contact all major shareholders, investor representative bodies and meet them - preferably face to face.

But you must demonstrate you have tried to engage with the company first. Note fund managers generally vote against ESG motions. Even those who claim to be supportive of ESG principles.

The LAPFF "Marks and Spencer" motion against a combined company chief executive also being the company chair was a landmark occurrence. There had been significant engagement beforehand about best practice. Stuart Rose now says that it was his worse mistake (not to separate the roles of Chair and CEO). Marks and Spencer have now a separate Chair and CEO and comply with best practice. The panel were "disappointed" that L&G tracker fund managers voted against this (why on earth did L&G do this?) and that they had 4.5% share of the company. Remember that there is only usually 50% turnout of shareowners at AGM's.  So you can have a greater affect even if you only have control of a smaller number of shares.  The ESG motion on anti-trade union activities of First Group in the USA did result in significant change in company behaviour.

Colin talked about the Fair Pensions BP/Shell Tar Sands motions and the UNISON staff pension fund which helped bring it about. UNISON staff pension scheme has a broad screening programme such as not to invest PFI contractors.They cleared the proposed motion with the Canadian PSI trade unions beforehand. The motion fitted UNISON policy on climate change. It was crucial to get the support of the large American public sector funds. 45% global pension funds are in the USA. He reminded us all of the Freshfields legal opinion's that such “responsible” investment is a fiduary duty of Trustees. Colin recommended the book Hawley and Williams “The Rise of Fiduciary Capitalism”.

Jack Clarke pointed out that Unite spend 10% of their budget on organising. He talked about the Meat workers campaign. They gained 10,000 new members and 250 new stewards. A key issue was agency working. Agencies undercut permanent workers and exploited staff. The Union wanted equal treatment. They worked on a supply chain strategy. 85% of the meat market goes to retail shops. They pushed Tesco and other large UK retailers in a pincer movement, above (by share motions) and below (from workers). Tesco is a key market driver. They tabled a solution at the AGM with West Yorkshire Pension Fund on this issue. 11% shareholders voted in favour and 7% abstained. There was widespread press coverage. ASDA signed a deal with Unite for equal treatment in the UK and Ireland. 50,000 workers affected in the UK and gained parity of pay and were now usually made permanent after 13 weeks agency work. Lessons: Resource intensive; you need to have economic as well as morale case. Needs to be more active engagement with trade union trustees. It is vital to deliver bottom up pressure on fund managers.

Get your facts right about the Local Government Pension Fund says UNISON

"UNISON, the UK’s biggest union, with more than 600,000 members working in local councils, today called on consultants and government ministers to get their facts right on local government pensions.  

The call follows a claim by John Balfe, so-called “independent” pensions consultant, that the scheme’s liabilities had increased to £100 billion.  The Communities and Local Government Minister, Eric Pickles, managed to muddy the waters even more by unsubstantiated claims that  ‘town hall pensions are now costing over £300 a year to every household paying council tax."

Heather Wakefield, UNISON Head of Local Government, said:

“Another week, another attack on the local government pension scheme. These so-called independent pensions consultants and government ministers should get their facts right before they resort to crude scare-mongering.

“Eric Pickles is plain wrong. Less than 6% of council tax payments fund pensions. More than 50% is made up of employee contributions and investment returns.

“The local government pension scheme is in good shape, and is a vital way of allowing mainly low paid workers to save for their retirement. A report out this year confirmed that the scheme could cover all its liabilities for the next twenty years, without a single penny more in contributions. What’s more, the scheme invests hundreds of billions in UK stocks and shares every year – a huge boost to our economy.

“With pensions, its vital to take a long term view. It is totally misleading to take an assessment of the schemes liabilities now and make claims for the future that don’t stack-up.  All investments have taken a knock thanks to the financial crisis, but given time they will recover.”

Key facts on the local government pension scheme:

-       The average local government pension is £4,000 per year, for women this drops to just £2,600, or less than £40 per week.

 -       After intense negotiations, a new pensions agreement in local government was introduced in 2008, setting out terms that include workers paying 6.4% of their salary into the scheme.

-       Local councils get most of their revenue from business rates and from central government grants. In reality, less than 6% of council taxpayers’ rates goes towards funding the pension scheme. More than 50% of the cost is met by employee contributions and investment returns.

 -       Research in 2006 showed that if the LGPS did not exist - based only on current pensioners – it would cost the taxpayer £2bn a year in increased means tested benefits and loss of tax revenue. It would also fuel increased take up of NHS and council care services.

 -       Often overlooked is the huge investment power of the LGPS fund. In 2008 the total value of combined assets in England, Wales, Scotland and Northern Ireland, were £143 billion - 60% of which was invested in equities or shares, in UK and global stock markets. In the same year, more than £1 billion was invested in each of the top four FTSE companies. If the scheme were to close, and this investment was withdrawn, it would have a huge impact on the UK economy.

-       The LGPS is in better shape than a most other schemes. Even in the depths of the recession, investments provided nearly £3bn for the LGPS in England, accounting for nearly one third (27%) of the scheme’s overall income. Year on year, the scheme takes billions more in contributions and investments returns than it pays out in benefits. Last year, income from member contributions to the scheme in England alone increased by 15% - outstripping expenditure by £6 billion.

-       An Audit Commission report in 2010 stated that the LGPS could pay out all pensions due for the next 20 years without any further contributions.

More information from UNISON Press Office on 0207 551 1555".

(Hat tip UNISON press release)

Radio 5 Live: Pre Hutton Report on Public Pensions

This morning I was picked up from home by a car at 04:20am (the joy) and taken to the BBC studios in Shepherd Bush.  I was being interviewed on the Radio 5 "Wake Up To Money" business news.  Later today (08:00am) Lord Hutton was due to publish his interim report on the future of Public Sector Pensions.

I was there as a "shop steward and member of UNISON who is in the Local Government Pension Scheme" (LGPS).

I live in East London but at this time of night/morning it only took just over 25 minutes to drive to the West End.  Young people were still in the streets walking home from parties or night clubs. 

I was looking forward to this because I hadn't been interviewed in a studio before and I welcomed any opportunity to try and counter the sheer rubbish being put out about public sector pensions.

At the BBC I was wheeled into the studio with presenters Mickey Clark and Andrew Verity at 05:30am and interviewed alongside pension consultant, Dawid Konotery-Ahulu, who was in another studio.  You can check out a "play again" recording and podcast here.  I'm not sure how long this will be available.

I thought it was quite a fair debate (even if the first question was as ever about the prospect of strike action).  I did get an opportunity to try and argue :-

• Against the "propaganda, misconceptions and down right lies" told about public sector pensions. 
• We should not have a race to the gutter or to the bottom in pension provision.
• There are £100 billion of assets in the LGPS which could pay for all pensions for the next 20 years without any further contributions from anyone (not that I am suggesting that!)
• I pay nearly £190 per month to my pension and having been contributing similar levels for nearly 20 years.
• The most I could get out of my pension after 40 years of service is half pay and 1.5 x final salary lump sum
• The average LGPS for women is £2800 per year.  These pensions are not gold plated.
• In the NHS pension there is already an agreement to restrict employer contributions to 14%.
• If you got rid of final salary schemes then you will not save any money since if you want to avoid pensioner poverty you will have to spend similar or even more on money purchase schemes.  Decent pensions costs money.
• The real pension scandal is the 2/3 of private sector employees whose companies make no contribution whatsoever to their pensions.  Many of whom will have to rely on means tested pension benefits when they retire and this will have to be fully funded by all taxpayers.  

Afterwards I went out of the studio and soon after the next guest was sent in.  I was escorted to the reception and chatted to the researcher about pensions (ironically the BBC was supposed to be on strike over pensions yesterday). Another car took me home for 06:30 and I was able to have enough time for a quick run along Wanstead Flats in the morning fog before work.  

I'll post another time on the actual Hutton Report (when I have caught up on my zeds)

GMB mythbuster on the Local Government Pension Scheme

MYTHS EXPOSED Inaccurate information and misleading statements about the Local Government Pension Scheme (LGPS) are rife in the media. This guide highlights the most prevalent and erroneous of these myths and sets out the realities of the LGPS. MYTH: Workers in the private sector have to pay for the LGPS while local government workers reap the benefits REALITY: Everyone pays for everyone else’s pension. Companies with occupational pension provision for their employees include pension costs when pricing their goods and services. All taxpayers pay for the cost of inadequate pension saving (increasingly prevalent in the private sector) through the tax and national insurance spent on increased take up of state benefits and demand on NHS and council care services. MYTH: 25% of council tax is spent on the LGPS REALITY: This misrepresentation deliberately ignores the fact that 75% of local authority income comes from sources other than council tax. The true figure as reflected by the Society of County Treasurers is around 5% (£65 a year for the average council taxpayer). MYTH: LGPS costs are soaring and the scheme is unsustainable REALITY: The cost of the LGPS to employers for service from April 2008 (2009 in Scotland and Northern Ireland) was reduced during the reforms to the scheme that included changed benefits and higher average member contributions. Member contributions on average increased by 0.5% and have continued to rise since, now approaching 0.7% above the old scheme’s member contribution rates. The introduction of cost sharing in the new scheme is designed to manage future funding volatility. Costs associated with service before the new scheme was introduced should have been funded by employers in the past. These costs cannot be reduced by changing the scheme for current or future members. MYTH: The employer contribution rate in the LGPS is too high REALITY: There is not one employer contribution rate in the LGPS. There are over 7,000 participating employers in the scheme and each has their contribution set by the private sector actuary employed by the relevant one of the 100 funds in Great Britain. Current employer contribution rates range from 14% to 25% with an average of 18%. Given the level of past underfunding that remains to be contributed by many employers to the scheme this is a reasonable level. At the 2010 valuation the level may change because the future service cost has dropped as a result of the 2008 reforms but the legacy of past underfunding by employers remains in many, although not all, funds. MYTH: Local government pensions are paid directly by the taxpayer REALITY: The LGPS, like all private sector defined benefit schemes, is a funded scheme with real investments in UK and overseas business and tangible assets such as property all generating returns to the 101 funds that make up the Local Government Pension Scheme in the UK. The taxpayer funds a proportion of the employer contribution to the funds through local and national taxation. MYTH: The LGPS is only nominally funded REALITY: The LGPS has more than £100bn in real assets: property, investments in UK and overseas businesses, cash and government bonds. Four out of the largest 20 pension funds in the UK measured by asset level are Local Government Pension Funds [Hewitt 2010]. Total income to the scheme exceeds expenditure by £4-5bn every year [CLG 2009], even in the current climate of poor economic performance. Even in the depths of the recession LGPS investments provided nearly £3 billion for the LGPS in England alone, accounting for 27% of that scheme's income. Another factor contributing to the ongoing viability of the scheme to this is the increase in member contributions. Yield from employees increased by 15% in the last year as a result of the new contribution rates in the 2008 Scheme [CLG 2009]. MYTH: Scheme members retire on gold-plated pensions, protected for life REALITY: Around half of LGPS pensions in payment are below £3,000 a year [Audit Commission 2010]. The mean average pension is £4,033 with the average for women only £2,600 [CLG 2009]. As with any pension scheme member’s accrued rights, it was generally held that pensions already paid for were protected for life, however, the unilateral cut in the indexation of pensions from RPI to CPI has brought this into question for both public and private sector pensions. As a result of the Tory-Lib Dem budget LGPS members are likely to lose a quarter of the value of their pensions over the next 25 years pushing many more on to means tested benefits. MYTH: High earners in the LGPS receive unreasonably high pensions REALITY: In local government highly paid employees are in the same pension scheme as the workers near the minimum wage. In the private sector many company directors and senior managers set up their own exclusive defined benefit schemes on extremely generous terms while their employees have only a low value defined contribution scheme. The average accrued pension for a director in the private sector is £227,726pa, 56 times higher than the average LGPS pension [TUC PensionsWatch 2010]. Some members of the LGPS retire on very high pensions as a result of receiving very high salaries (236 local government employees earn more than £142,500pa), not as a result of an over-generous pension scheme. MYTH: Local government workers have a job for life and better pay than everyone else REALITY: The average length of membership in the pension scheme is only six years in stark contrast to the vision of a job for life. Existing jobs are often part time and low paid with minimal opportunity for overtime and other mechanisms common in the private sector to boost income. When comparing full time workers who are saving for retirement through an occupational pension scheme, public sector workers actually earn £22 per week less than their private sector comparators. The 'total reward figure', which is gross pay and employers' pension contributions, in the private sector is £666 and in the public sector is £644 per week [ONS 2010]. Local government pay is also low in the public sector context with two thirds of local government workers earning less than £21,000 a year. MYTH: To make pensions fair public sector provision must be reduced to the level common in the private sector REALITY: This would increase the number of older people forced to live in poverty which in turn will increase the cost to the taxpayer of state benefits, health and care services. It is never the right solution to inequality to stoop to the level of the lowest common denominator. In education the solution to problem of good schools and bad schools is not to worsen the good schools so all children are poorly educated. In pensions the solution is not to worsen the good schemes but to raise the standard of the inadequate schemes. In fact defined benefit pension provision in the private sector attracts a future service employer contribution of 15.6% [DWP Pension Trends] compared with less than 14% in the LGPS. MYTH: LGPS benefits need to be cut or member contributions increased because of deficits in the funds REALITY: The LGPS is estimated to be at least 75% funded with sufficient assets to pay all pensions due for the next 20 years without any further contributions [Audit Commission 2010]. Where deficits exist they relate to past service and underfunding by employers. One reason for current deficits is that LGPS funds were between 1990 and 1993 encouraged by the then Conservative government to fund only to 75% so the pension scheme could fund lower poll tax bills. Now deficits are measured against a 100% funding requirement, the cost of this historic underfunding is clear. Changes to benefits would only affect the future service cost which, as set out above, is already below the private sector average for defined benefit provision. MYTH: The current economic situation means member contributions to the LGPS need to be increased REALITY: Benefits already earned by members have to be paid, whatever changes are made to the scheme. There are no short term cost savings to be made from making radical benefit cuts. Increases to member contribution rates would not aid the Treasury’s finances unless the government introduced a specific tax on LGPS members (which would be contrary to their stated commitment to encourage pension saving). Instead any increase would be transferred into LGPS funds which have already been valued, without going through a valuation revision an increase in member contributions is unlikely to have any impact on employer contributions for at least three years. Members are currently subject to a three year pay freeze, without the protection for the lowest earners that exists in other parts of the public sector. Some members of the LGPS earn only 37p an hour above the minimum wage and many lower earning potential LGPS members opt out of the scheme on grounds of affordability. This trend is particularly common among part time workers (the vast majority of whom are women), in Greater Manchester, one of the larger funds, only 10% of full time staff opt out of the LGPS compared with 30% of part time staff. MYTH: LGPS members retire at 60 and get a pension for nothing REALITY: The normal retirement age in the LGPS is 65 and has been for many years. Members of the scheme contribute between 5.5% and 7.5% of earnings depending on salary, averaging over 6.4% overall. This is more than double the amount the average member of a defined contribution scheme contributes. MYTH: The new LGPS only affects new starters while existing members have their own preferential scheme REALITY: Reforms to the LGPS affected all contributing scheme members, existing and new. The LGPS is not a two tier scheme, the LGPS 2008 is the scheme for any one of the two million people working in LGPS covered employment whether they started ten years ago, ten minutes ago or are due to start tomorrow. Existing members sacrificed benefits and increased their contributions in order to keep the scheme sustainable. The LGPS is the largest pension scheme in the country with more than 1.7m contributing members, 1m deferred members and a further 1m pensioner members.

Picture of former Labour West Ham Councillor, Mayor, MP and founder of the GMB, Will Thorne on a fact finding mission to Revolutionary Russia in 1917.  Hat tip Tom and original link to GMB site here.

Council loses Court fight to duck Housing Association Pension obligations

This is an extremely odd story (to me anyway) and probably completely obscure to most folk. (Inside Housing 12 August). Daventry Council transferred its 3100 homes and housing staff to Daventry & District Housing Association. Despite there being an explicit clause in the transfer agreement that the Council will be responsible for making up the deficit in the (LGPS) pension schemes up to the point of transfer, the Council later went to the high court and claimed solicitors made a "mistake" and both parties were liable.

The High court kicked out the case on the seemingly very logical grounds that D&D HA had never made any plans to pay the deficit or put it in their business plan.

Apart from the legal arguments about who did and said what – there is a basic pension governance issue at stake. Why should a new organisation be responsible for a pension deficit run up before it even existed? Daventry Council before transfer would have had the legal responsibility for trying to make sure that the pension scheme (part of Northamptonshire LGPS) was properly funded and investments handled properly before transfer.

After transfer the housing association as an “admitted body” would then be “responsible” and it would be up to them to play its part in making sure that the scheme was run properly and they would liable for any funding shortage.

The impact on residents (and staff) in a small housing organisation of dealing with an unplanned £2.4 million shortfall could have been disastrous.

Yet another reason why staff members of pensions schemes (who are the real beneficial owners) should be fully engaged in all aspects of their governance.

UNISON NDC 2010: Defending the Local Government Pension Scheme

On Wednesday morning there was a debate on Defending the LGPS.  I posted about this excellent UNISON Labour Link leaflet on the threat to our pensions just before the General Election.

I hope those who claim there was "no difference" between Labour and the Tories are pleased with themselves.

Anyway, below is my speech on motion 18.  I tried to speak on amendment 18.4 which for some reason deleted the call for there to be a single LGPS pension fund in England, Scotland and Wales.  I got "bumped off" by a "point of order... for the question to be put" (went to an immediate vote without hearing all speakers) .

Here is my speech anyway.

 "John Gray, Tower Hamlets LGPS Representative, With Voting Rights!!

I speak from inside the pension machine – I’ve been a UNISON LGPS rep for 14 Years...I’ve watched fund managers come and go – at great expense to our fund....believe me on this

Conference there is going to be a Public Sector Pension Commission. It will look at the future costs of all public pension schemes.

The union needs a specific response to the Commission that deals with the funded element of the LGPS.

Just like the situation in Holland in 1996 when public sector pensions were under threat – what did the unions, employers and government do then? They created a new pension system for public sector workers.
1 fund, 12 sets of benefits, governed by 5 trade union reps and 5 employer reps,

Consultation committees for scheme members, pensioners and employers

That body then created its own fund manager, in-house, low costs, responsible investor, it’s now the 3rd largest pension fund in the world with one objective to pay the members pensions and not fill their own pockets and drive away in the latest Porsche

And conference in 2008 a study looking at reform of pension’s management for state workers in Ontario Canada said “lower investment fees are but one of the many advantages enjoyed by large plans over smaller ones and over individual savers.

Conference its clear, everyone who has tackle this question of costs looks to consolidate funds

In London there are 34 pension funds, all competing with each other, all with at least 8 fund management contracts each, pouring money into the pockets of the City traders.

Why 34 funds? They are an accident of History, a system well past its sell by date.

What counts is the economic power and efficiency when it comes to our funds.....anything less than 1 in each country will cost us money in lost fees and no economic power

Why not 5, why not 10 why not 20?

Because they cost us more to run, wasted money that we cannot afford to throw away now or for future generations

So I ask you to reject 18.04

Let us offer the coming generations a chance to thank us in the future..thank us for having the nous to help save decent pension provision for them

Give us the policy to move forward with a coherent and calculated set of demands...let us tell Pickles in a time of austerity we know how to save money