Hutton Report - Remind me again why the low paid are paying for the Banker's crisis?

There was no great surprises this morning at 8am with the publication of Lord Hutton's final report on public sector pensions.

He doesn't seem to "get it" that he is being used by this Tory-led government to justify an infamous double whammy of massive increases in pension contributions at the same time as equally massive cuts in pension benefits.

There is no repeat no dire crisis in funding arrangements for public sector pension funds.  There are indeed problems but remember only 4 years ago there was a huge row between the then Government and the public sector unions about pensions.  A tough compromise deal was eventually hammered out which saw rises in employee contributions, reductions in benefits and caps on employer (taxpayer) contributions.  Which the unions accepted despite the pain because it was promised that this will make the schemes affordable and sustainable.  So what on earth has really changed in these 4 short years about pension fundiamentals?

What is happening is quite simply a Thatcherite and Orange book ideological attack on the principal of collective provision coupled with plain old fashioned public spending cuts.  For example this government has reduced grants to Councils by £1 billion based on an assumption that staff contributions to their pension schemes will go up by some 50%! (repeat 50%).  If this goes ahead then this will mean that pensions will become unaffordable and people will leave their schemes in droves.  If this happens and members can't afford to remain or join then yes, the public sector schemes will indeed fail.

So yet again we have some of the most low paid and vulnerable in our society being expected to help make good a public spending deficit caused solely by Bankers and the Rich who ripped off this country and now expect us to pay for it.

This lunchtime I was interviewed by Channel 5 News (who reported only my comments on the likelihood of strike action), live on Sky News (robust but interesting) and ITN (see caption and this link). 

"Going Dutch – how to double the value of British pensions"

Hat tip Touchstone by TUC Nigel Stanley "Earlier today I spoke at the launch of  Going Dutch – how to double the value of British pensions.  This is a new report by David Pitt-Watson for the RSA that argues that the UK’s DC pensions could deliver much better pensions for the same contributions.
It’s an exemplary report - succint, well-written and carefully argued. I would urge anyone with a passing interest in pensions policy to read it.
The report argues that the DC schemes in which most people with pensions now save are extremely inefficient. There are two main areas of potential gain.

• Making schemes much bigger and ensuring that they are run by trustees in the interests of their members can deliver one lot of savings. Charges dramatically eat up investment gains – up to 40 per cent of potential pension – and if you can reduce charges through efficient management and economies of scale then you can deliver seriously better pensions for the same contributions.
• Making DC schemes collective so that members pool their resources and share risk can deliver a further increase in benefits. This would mean schemes provising their own pensions rather than compelling people to buy annuities....."

LAPFF Conference 2010: Stewardship Code: Putting it into practice

Tom Powdrill (PIRC) led a panel discussion about putting the Code into practice. David Murphy (NILGOSC), Tony Little (Gartmore) and Iain Richards (AVIVA). The Code came out of the Walker Report and is a response to the financial crisis. Not a fluffy “feel good” report but an attempt to try and prevent a future financial crisis. Can shareholders control companies? If shareholders cannot then look at Ireland were due to voluntary failure there is now a regulatory approach to governance.

David spoke first about his scheme. There are 204 employers, over 80,000 members and £3.6 billion assets. They support the idea that they are asset owners; they are the ultimate owners and should take responsibility for what has gone on in the past. They believe in co-operation and the importance of disclosure. They vote in all markets and report back on investment policy. Be open and transparent.

Tony explained that Gartmore are mainstream investors in 2,500 equities around the world. He was struck by the difference between this report and the UK governance report Cadbury which said this is what good practice looks like and others should aspire to it. The Stewardship Code “horse trades”. This is what you should be doing. Will see what good practice eventually looks like. The EU intervention has been negative rather than positive. They have forced the pace. They want to regulate. His role often is to be candid friend.

Ian said there may be over blown expectations of the Code. It was to resolve the “absentee landlord” problem in the run up to crisis. But there is an issue of resources. They have 7 in his team but this is still limited. Conflicts still exist; there are still misaligned incentives, short term structural problems. There are differences of objectives in engagement. In the UK 13% of shares are owned by pension funds and 13% by insurance funds. But it is only 26% of market. 40% of UK now owned by overseas investors. Concern around the role of the ISS.  An unaccountable organisation who admits looking after its primary audience - US investors. An awkward question is what do fund managers do? They have already signed up to the Stewardship principles. Is it transparent to have such long policy statements? Principle 7 (reporting on what they do) is the most important. There is a poisonous view that all you have to do is delegate everything to fund managers – and job done. This leads to apathy.

Next Q&A. I asked a question about how the new Code will not last be last word on governance and will evolve and change. Panel members have hinted at things that could be done better. What one significant improvement would each of the panel members want to see in any future review?

Tony: it needs to be redrafted and made clearer. The FRC next time should engage more about what is good practice. Iain: that it should be extended across to Europe. Especially with Funds tied to banks. David: he is against further regulation. He is happy with “comply or explain” approach. But it does need to be fleshed out. It’s a bit vague. Not only would he like it extended to Europe but wouldn’t it be nice to have in the US although that is “pie in sky”.

Tom asked does the Code make a RBS (Royal Bank of Scotland) less likely. Tony: No but... Ian – more cynical. Nothing much changed. No evidence that in 5 years time the world will have changed. David: We don’t know what will happen next.

The largely negative response to this question supports my own view that the Code (although an welcome improvement) is just sticking plaster and not the root and branch reform that is needed to stop another Fred the Shred.

Auto-enrolled into funding the Tories?

There is a welcome "revolution" in pensions about to hit Britain pretty soon.  In 2012 there will be at long last be a national trust based low cost pension scheme aimed at low to moderate earners and their employers (NEST). 

This is a massive advance that could eventually even help eliminate pensioner poverty in this country. 

But there could be a problem.  Trust will be a huge issue to ensure that this scheme is a success.    NEST is currently advertising for fund managers to bid to run these funds.

Now, there is a certain major international fund manager called Fidelity who may be considering whether or not to tender for one of NEST's funds.

Not that you would evcr know from their literature but Fidelity is also one of the biggest financial supporters of the Conservative Party.  Check out here, here and here. They have poured hundreds of thousands of pounds into the Tories in recent years (£495k in 2004-2008).  This is money made from small savers and pension policy holders who would not a clue that the profits from managing their money were being used to fund the Tories.

If Fidelity was chosen as a NEST fund manager then we could find that workers are being auto enrolled by law into paying policy fees to a company that has been a major paymaster of the Conservative Party. 

This is plain wrong.