Friday, March 23, 2018

Paul Finch - Canadian Pension Funds Investments In UK infrastructure - privatisation or nationalisation?

Picture of Paul Finch, Treasurer of British Columbia Public Service Union with London UNISON Local Government Pension Scheme reps (Paul centre in black suit) & our Regional UNISON manager, Helen Reynolds last week. 

Paul gave a well received talk to our forum meeting followed by questions and answers. His time was short since he was due to give a similar talk to UNISON Energy & Water Pension trustees later that morning. 

The day before Paul had also gave a full presentation to a number of Union pension officers and journalists. I have the excellent notes of this meeting by UNISON Staff Pension manager, Eve Keith, which I have editored and like to share (which I take full responsibility for below)

"British Columbia Public Service Union organise 80,000 public employees, and a trustee of 3 pension schemes that use British Columbia Investment Management – BCIM means they are part owner of Thames Water and a lot of other infrastructure around the world. Paul Finch has extensive experience of de-carbonising pension funds.

He explained that he was speaking in his role as treasurer.

Canadian Pension Schemes

Paul provided some background as to the pension system in Canada. Target Benefit Plans are the Canadian equivalent of CDC. Used for precarious workers where its not practical to use DB. He referred to TBS as being DC schemes which had been levelled up.

There is a national pension scheme which aims to replicate a % of earnings to a set maximum using a combination of the Canadian Pension Plan (DC) plus an old age supplement.

Private pension provision was build around the state system. The feeling then was that lower paid people didn’t need additional pension savings as the national scheme was sufficient for them. As a result it became common for private pension arrangements to deduct the set maximum earnings of the national scheme for accrual and contribution purposes. Now private pension provision consists of DB schemes with flat rates of accrual.

Paul explained the way that the Trustee boards were set up, the Trade Union representation on those boards and the rules relating to quorum (2 union executive trustees and 2 employer trustees must agree to a motion).

Paul talked about the impact that trade unions had on these private pension funds. He said that the trade unions struggled with pensions resource. He said that the Canadian trade unions had concerns about capital stewardship and infrastructure. He explained that in British Columbia property prices were already high and infrastructure investment could be pushing those up further.

Paul said that the British Columbia Public Service Union worked with Share (for further info: https://share.ca/) and also the Capital Workers Convention. He said their guidelines around infrastructure were at an early stage but the concept was that if the investments of one trade union’s pension scheme were harming the members of another trade union, there would be a framework in place to deal with this. He added that this required a training and education piece for British Columbia Public Service Union’s appointed trustees.

The conversation moved onto regulatory regimes. Paul said that in British Columbia public sector DB schemes are not subject to a solvency valuation. Quasi public sector and private sector schemes are in a similar way to the UK. Two Canadian states have removed solvency valuations altogether so both public and private sector schemes are valued on a "ongoing concern basis".

Glyn Jenkins (UNISON Pension officer) asked what happens where a shortfall is revealed? Paul said there where the shortfall will be met by contributions those will be 50% member contributions and 50% employer contributions.

Infrastructure Investment

Paul gave Thames Water as an example. He said that British Columbia Investment Management - BCiMC owns 8% of Thames Water shares. Not enough for BCiMC to have an operational seat on Thames Water Board in their own right, seat is shared with another union. Paul added this had been a lesson learned for BCiMC and perhaps their investments in future must be of a level to obtain proper representation.

BCiMC get good returns from their investments such as Thames Water. He said that, in his opinion, if Labour were going to nationalise utilities it was unlikely that they could pay a fair market value to investors. Paul suggested that as a first stage Labour could significantly increase the utilities’ regulatory and control regime to make it be run as though it were a public body. The operation would therefore be less profitable and so the value offered for buy out would appear to be nearer or equal to the market value.

Someone attending said that he thought a party’s commitment to nationalisation was also an effective tool for reducing “value”. He said that since the Labour party’s May 2017 manifesto, 33% has been wiped off of the value water companies’ share prices.

There was a discussion about the trustees approach to risk v reward. Paul said that in Canada it was fairly common for trustees to apply ethical screens. He added that trustees were open to criticism in this area. There was case law establishing a high bar for members to prove that an ethical screen has lost the fund money.

Note: I asked Paul what the current situation was in Canada with ethical screening vs engagements. His response was:

Negative screening and shareholder engagement are both utilized as strategies. Negative screens for tobacco, firearms and such are very much baked in to what happens, but shareholder engagement occurs on other issues.

Obviously, shareholder engagement is much more difficult when we’re talking about pooled funds.

(Eve Keith)

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