Thursday, June 28, 2007

Tower Hamlets joins Local Authority Pension Fund Panel



This will not be very thrilling news to most folk. Please bear with me. For the past 10 years or so, as a scheme member and staffside pension’s rep I have been trying to persuade the Council to join the Local Authority Pension Fund Forum (LAPFF).

I’m just back from the Pension & Accounts committee and I am really pleased to report that tonight the committee decided to sign up for the LAPFF. Now most people would have clicked off this post as soon as they saw the words “committee” and “pension”. Never mind “LAPFF” (which is a bit of a mouthful). However, the local government pension scheme (LGPS) is not only about paying members retirement benefits it is also probably the biggest collective funded pension scheme in the Country (3.5 million members and £100 billion plus investments). It is therefore a major investor (and owner) in almost all British and major international companies. It is split into 99 locally administered schemes.

By “funded” I mean that workers and employers’ pension contributions are invested mainly in the stock markets (shares in companies), bonds (loans to companies or governments), property (usually collective trusts) or cash (deposit accounts, money markets). Some pension schemes to not invest their contributions but operate a “pay as you go” system. Benefits paid to current pensioners are funded by the contributions of current workers and employers e.g. the NHS pension scheme.

Most of the money invested in funded pension schemes such as the LGPS is invested in companies, if you own shares in any company this makes you an owner of that company. If you own part of a company you therefore have a responsibility as an owner of that company to make sure that this company is properly run. This responsibility does not conflict with any legal duty to ensure that investment returns are maximised since it is accepted that companies which are run properly and have responsible investors perform better than companies which do not. This is just commons sense.

To my mind “properly run” means for example making sure that the companies we own do not exploit child labour, are not anti-trade union, ensure their employees (and sub-contractors) work in safe and healthy conditions, do not damage the environment and are open, honest and transparent organisations. See previous posts.

The Tower Hamlets LGPS is worth over £700 million at the moment. A huge amount of money, but in pension terms it is a minnow. To exercise your right of ownerships effectively with that amount of money is not really feasible. You simply do not have enough shares to be listened to by company bosses. However, if the Tower Hamlets scheme was to collectively combine with other LGPS schemes (via the LAPFF which represents some £40 billion of assets) then we would have potentially a significant degree of influence to try and ensure that our companies are properly run.

I would urge all LGPS join LAPFF (41 now out of 99). Not only is it a campaigning organisation and runs well respected training events but it is an opportunity for Councillors (and member nominated representatives) to meet up with other LGPS members up and down the country to share experiences and improve their schemes.What I feel is positive is that my pension scheme will be able to join up with other LGPS schemes and use its collective strength to try and make sure that our duties as owners are carried out in accordance with our legal obligations, accepted good practice and our social responsibilities.

Thanks to (Labour) Cllr Bill Turner (Chair), Cllr Joshua Peck, Cllr Shafiqul Haque and Cllr Waiseul Islam.

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