Monday, May 28, 2012

Molins to Workforce: give up your pension...or else!

It was another bad week for employees last week. At around the same time that the Conservative hedge fund multi-millionaire and sponsor, Beecroft, published his report recommending that companies should be able to sack their employees if they don’t like them, Molins, a FTSE listed UK engineering company was found to have threatened its workforce with the sack if they don’t leave their pension fund!

They decided to close their scheme but their trust deeds did not allow it. So they have issued a section 188 notice to the government saying they are intending to dismiss everyone and then offer to re-engage them on condition that they do not join the pension scheme.

Molins claims that that they cannot afford to run its existing defined benefit scheme. Which is rubbish. It is making good profits and is financially secure.

Pension’s Week suggest that there may be a problem with attracting investment but that is not what they are telling their workers. I think it is just cost cutting and they want to cut the wages of their employees with a substandard pension contribution which will not be enough to give their workers enough money to have security and dignity in their old age.

I gave a statement to “Pensions Week” (part of the FT group) as Chair of the AMNT Working Group to defend and promote Defined Benefit Pension schemes. Part of which they quoted

This is a test to the 2006 pensions regulations, which quite clearly state an employer’s consultation with the workforce has to be meaningful,” said John Gray, Association of Member Nominated Trustees (AMNT) committee member.

“Molins appears to in breach of its own ethics policy. Threatening to sack their staff in order to get out of providing them with a decent pension does not appear to us to be anything like the highest standards of ethical behaviour.”

The AMNT has launched a campaign to support trustees of DB schemes under threat of closure.

What Molins has got to realise is that closing their pension scheme will not make their liabilities disappear. It could make things much, much worse.

Current Pension deficits are worked out using a completely artificial and discredited accounting standard called “mark to market”. Due to a double whammy of recent exceptionally low fund management returns and a 200 year low in the yield of gilts make things appear far more negative  than they actually are.

Not only that but if you panic and close your scheme in response to these meaningless figures then the company faces having to pay even more into the scheme since the fund rapidly becomes cash deficit and has to invest into low yielding bonds and gilts with no equity premium.

Ironically last week I goggled “Molins” and “Pensions” and came across this story from "The Independent" business pages in 1992. The Molins pension scheme was then in surplus by £90 million.

The company was trying to take out £18 million out of the pension scheme to cut company debt and fund acquisitions (and increase benefits). I don’t know if were able to take this money out of their scheme but if they did what would have been the scheme funding now if they did not take out £18 million in 1992?

(NB to be clear this post is my own and not necessarily the views of the AMNT)

UPDATE: Professional Pensions has a good article on this case here


Gilberdyke said...

Bad taste photo accompanying this post. For those who don't know it, it shows a Saigon police chief shooting a Vietcong fighter in the head at point-blank range. It won a Pulitzer prize for the photographer in 1969 and did much to change the American public's attitude towards the war in Vietnam.

To use it to illustrate a story about workers being forced to leave a pension scheme - however bad that is - trivialises what the Vietnamese people went through.

It does you no credit John and you should remove it.

John Gray said...

Hi Gilberdyke

I did think beforehand about the ethics of using this photo and again with reference to your comments. But no, on balance I do not agree with you and I do not think that it trivialises what the Vietnamese people went through at all. In fact it brings the experience to a wider audience.

The picture is an iconic picture which I think helps illustrates and captures the awful predicament of those workers in Molins who face possible poverty and misery in retirement - or being sacked.

Most of them have spent all their life working for Molins and fear their futures.

This is not only disgraceful company behaviour but also probably illegal under employment law and also possibly a criminal act under pension consultation regulations.

I was going to title the photo post as "the CEO of Molins negotiates with his staff".

Does this compare to the suffering of the Vietnamese people? No, but I don’t think that the post (as opposed to the use of the photo) says that.

Gilberdyke said...

I think you made a bad decision. If you genuinely think the photo captures the predicament of Molins workers then what must you think of the fate of perhaps 5 million Vietnamese dead?
As for bringing the experience of the Vietnamese to a wider audience; really? Come on, be serious.
Using this photo makes what would otherwise be a good post, with an important point, seem absurd.

John Gray said...

Hi Gilberdyke

Well, that is your view but it isn't mine.

I am glad that you think the post is important.

jez Evans said...

Hi John
I have added your Blog to the list that I am following. I found your post on Molins to be very informative. The question remains why didn't the Company take a loan from the Fund. This did not become illegal until 1997 ?

John Gray said...

Hi Jez

Crikey, I didn't even realise that they could get loans from the fund before 1997!

I would think that companies would perfer the cash without strings rather than any loan liability.