Fund managers deny Pension Trustees & their members a voice says AMNT

 

Well done to the AMNT (Association of Member Nominated Trustees) for this excellent stance on the refusal of many pension fund managers to allow trustees and pensioners to hold them to account for the way they vote in company Annual General Meetings. 

Too often the big fund managers vote against their own trustees ESG policies in what is called "pooled funds" which many pension schemes have no choice but to invest in. The suspicion is of course they do this in their own commercial interests instead of pensioners. 

The AMNT have managed to persuade the Government to set up a working party on barriers to pension trustee voting. 

Watch this space

Decent pension provision is not dying out - it's being murdered

A headline in last Friday's "Professional Pensions" was "DB surplus hits record high of £382bn on best estimate basis, says First Actuarial"

It is becoming increasingly clear that the the huge decline in decent pension provision in the UK (employer defined benefit schemes) is mistaken and even completely unnecessary. Millions of workers in this country will retire and die in poverty because of this.

Pension schemes were valued according to outdated and irrelevant accounting measures which pretended that they had huge unmanageable deficits. It was a little bit like telling someone who had just taken out a 25 year mortgage to buy a home that they were really bankrupt since they could not immediately pay off the loan.

6 years ago the AMNT argued that defined benefit schemes were affordable and stopping workers from joining or closing schemes was a nonsense.

Instead of using a broken yardstick to measure present and future costs, First Actuarial, have produced an index based upon a prudent estimate of investment performance. They calculate that the 6000 defined benefit schemes left need an actual return of only 2.6% per annum to pay its pension promises. While the stock market will go up and down, unless you honestly believe that the end of capitalism is nigh, surely in the long run, this return is more than achievable.

Last year there was a series of bitter strikes by University staff opposed to the dismantling of their supposedly bankrupt pension scheme USS. Under best estimate calculation they could have a surplus of £10 billion.

If you think I am angry about this situation then read below Death by Discount Rates

"Discount rate controversy is nothing new. One rarely, if ever, hears people in the industry say that using the yield on high-quality corporate bonds (as accountants do), or a rate just above gilt yields (as most actuarial valuations do) is without problems.

But the flaws are more serious than many realise. The theoretical case for these rates is acutely defective. They have wrecked company balance sheets, caused the misallocation of billions of pounds of corporate resources to plug illusory deficits, distorted scheme investment strategies, and played a major part in the collapse of private DB provision. If a disaster even a fraction of the size had befallen the state pension system, governments would have been voted out of office. It's a national scandal."

Frank Curtiss is the immediate past president of the ICSA and the former head of corporate governance at RPMI Railpen. Tim Wilkinson is the former chief accountant at RPMI Railpen

We need transparency on charges

This is my latest opinion article for Professional Pensions magazine.

"John Gray asks why UK pension schemes do not have access to important information on charges.

Earlier this month I went to the CWC annual conference in Amsterdam. This was for trade union pension officers and trustees. It was hosted by the equivalent of the British TUC and naturally there was a strong presence at the conference of Dutch trustees who help manage €1.2trn (£0.97trn) in pension funds.

While I am sure the Dutch model is not perfect, there seemed to be far more trust and confidence in their pensions system than I have ever found in the UK.

It also reminded me of a presentation by David Pitt-Watson in 2010 called "How do you double the size of your pension? Go Dutch!" Even back then David argued that due to low charges and scale, the average Dutch pension was twice the size of the average UK pension for the same level of contributions.

In the UK we are finally beginning to address excessive (and largely hidden) charges and costs in our pension funds. The Bank of England chief economist and even the prime minster have recently attacked the financial services industry for a lack of transparency. Four years ago the Dutch government forced all pension funds to publish its real costs on administration, fund management and transactions. This has allowed funds to benchmark and has driven their costs even lower.

It is argued that in the UK costs are hidden in a complex and secret investment chain and are far higher than presented. Arguably, cost has a bigger impact on long-term performance than picking good active managers.

But when one of the pension funds I sit on in the UK as a trustee (Not LBTH) asked all of our fund managers for the same information on costs that are disclosed in the Netherlands, two of them said they were unable to provide this information.

Why not have this information?

Why is this information freely available to pension fund members in the Netherlands but not in the UK? Why do I not know the true costs of running my scheme? How do I judge if we are getting value for money? How do I know if we are being ripped off or not?

Would you as an individual buy any other product if you did not know what its cost is? Even worse, what would you think of any company if you find out it had 'misled' you on the cost of its product. Remember how angry people were and the financial impact on Volkswagen when it finally admitted it had fiddled its emissions levels.

How can I comply with my fiduciary duty as a trustee if I don't even know such basic bread and butter information? In the United States pension trustees have been sued for such failure.

There now seems to be some momentum. The £27bn Railways pension fund Railpen recently audited its true costs and now believes that it can save the fund a staggering £100m per year.

The Local Government Pension Scheme appears to be adopting the Dutch system. The Association of Member Nominated Trustees voted at their summer conference to work together with the Transparency Task Force to campaign on costs and charges.

This is not about bashing the financial services industry. I don't have a problem as a trustee with paying for good performance. But I do have a problem with not knowing what that performance costs. This lack of transparency must stop. We cannot allow things to continue. We must establish trust and confidence in our pensions. UK Pensions - tell us how much you cost.

(John Gray is a pension board member of the London Borough of Tower Hamlets though he writes here in a personal capacity)

AMNT Summer Conference Monday 13 June "Do trustees delegate too much"?

Click here to come if you are an AMNT member or member nominated pension trustee.

Sessions on the agenda include.

Paul Trickett is Chair of Railpen Investments as well as carrying out a number of other Trustee and NED appointments in the financial services sector.  Prior to this he worked at Goldman Sachs Asset Management, Towers Watson and was previously CEO of the British Coal Pension Schemes

He is looking forward to a debate and some practical ideas abut how trustees can reduce their costs and apply more of their assets to paying members benefits

Rory Murphy  MNOPF

In the last five years the MNOPF has won numerous industry awards for their innovative de-risking projects and investment strategy and good governance is at the heart of the MNOPF’s success.  An early adopter of journey planning and one of the first large pension schemes to implement fiduciary management, this case study will highlight how the MNOPF has gone about delivering consistently improving funding levels with reduced risk and volatility.

Jonathan Stapleton
Editor-in-Chief, Professional Pensions and Workplace Savings & Benefits who says... 

The pension freedoms were launched in April 2015 and are now bedding in; the government consulted on overhauling pensions tax relief before deciding to hold back from radical change; the annual allowance taper came into force; and schemes had to grapple with the end of contracting out and GMP equalisation.

In addition to this, we have seen the introduction of a Lifetime ISA and independent governance committees; and a revised DC Code will come into force in July.

Yet, at the same time as all this change trustees continue to face the challenges of ongoing scheme management and funding – and are increasingly reliant on the support and expertise of their consultants, advisers and service providers to help meet their objectives.

But some are now questioning whether trustees are now too reliant on external help – and are perhaps delegating too much to third-party consultants and providers.

The theme of the AMNT’s Summer Conference – Do trustees delegate too much? ­– comes at a crucial time for UK pensions and I very much look forward to hearing the views of both AMNT members and speakers on this topic.

Andy Agathangelou
Founding Chair, the Transparency Task Force...

AMNT’s members are absolutely vital in helping to ensure pension schemes are well governed and can deliver value for money. I think the AMNT’s conference will be a great chance for me to explain the work of the Transparency Task Force, so much of which is being done for all types of scheme trustees including lay trustees, and how what we are doing is a “bullseye” hit on the issue of value for money. You’ll hear about the obstacles we need to overcome and how we’re doing just that, in a collaborative and consensus-based way.

Also, given all the regulatory-led and market-led changes taking place in the world of pensions right now I am absolutely convinced that the need for trustees to be right up-to-date has never been higher.
So this really is a must-attend event if you want to be confident of handling your fiduciary responsibilities correctly, for the benefit of your scheme’s members.

And I know the networking and social side of things will be great too – see you there!
Kerry Coleman ​joined The Pensions Regulator in 2011 as eLearning Manager, responsible for delivery of the Trustee toolkit and Public Service toolkit online learning programmes.

Kerry has worked in financial services for 20 years, starting out as an independent financial adviser before specialising in occupational pensions. Over the last 12 years Kerry has been working as a training consultant, with a particular focus on the web.

​ Kerry looks forward to her session with amnt on 13th June.​

Colin Meech of UNISON joins us on the panel -

• Can trustees control costs and charges? 

​
Thank you
Kind regards
AMNT Team
Call 07983 243500 or 07881 229717
Association of Member Nominated Trustees

Red Line Voting

Call - 07881229717
Website - redlinevoting.org

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When

Monday, 13 June 2016 from 10:00 to 17:30 (BST) - Add to Calendar

Where

Capita - 65 Gresham Street, London, EC2V 7NQ - View Map

Union rights ARE an ESG issue!

            An intelligent and thought provoking post as ever by Capital Stewardship blogger Tom P here (and below) on the failure (I could be a little more direct) of the ESG (Environmental, Social, Governance) industry to promote Labour rights. As someone who has an interest as the UNISON NEC member for the UK charitable and voluntary sector, I wonder how many of these organisations actually recognise trade unions for their own staff and have collective bargaining? Or realise if they don't - they are failing to follow the United Nations Global principles on human and Labour rights? 

By coincidence last week I attended a meeting of the Association of Member Nominated Trustees (AMNT) working group on their "Red Lines" initiative. Which is a new approach to pensions shareholder engagement and voting at Company AGMs. Labour rights and trade union recognition are accepted as key "Red Lines" - as important as environmental or corporate governance.

(Tom P) "I've blogged a little previously about what I see as a general failure of labour issues to make it very high up the ESG agenda. As someone who has worked with and for trade unions in different ways for much of my adult life I find this frustrating, particularly as it contrasts sharply with progress on environmental issues in responsible investment. So I thought I'd go into a bit more detail.

One of the things that troubles me is the apparent tolerance some people in responsible have for poor behaviour by companies on labour rights. I very much doubt this sort of behaviour would be tolerated in respect of other ESG issues. I think it is worth restating, as obvious as it should be, that labour rights are human rights. Therefore, where unions raise concerns about companies' not respecting labour rights this should not be seen as a "difference of opinion" between employer and employee, but a potential violation of human rights. Also, unions are very often able to provide specific breaches of labour law by companies. The consequences of such breaches vary considerably between jurisdictions but the key point is that companies are breaking the law, often repeatedly.

Seen in these terms, I question why investors do not take alleged labour rights violations more seriously. Aside from the danger in being seen as tolerating abuses of human rights, I would argue that investors should see this as a serious hazard warning. If a company is breaking the rules over and over even if you don't personally like/support unions you should be concerned about whether this is indicative of a wider management attitude.

However, for some reason this message doesn't seem to get through. I doubt a company that could be shown to have repeatedly violated environmental regulations would be given the benefit of the doubt by many ESG folks, but this does happen with labour rights. To take a real life example, imagine the reaction if a company stated that it would lobby aganst certain environmental standards because it was bad for business, and if it repeatedly used lawyers to frustrate attempts to make it more environmentally responsible. I think we know that most RI people would think this was intolerable.

Yet this is exactly what happens when unions try to organise within companies. It is far more acceptable in the ESG world for a company to oppose unionisation, even when this strays into alleged breaches of the law, than it is for it to decline to adhere to voluntary environmental initiatives or targets. I have even seen an asset manager with some ESG credibility report publicly that it supports a company's right to campaign against unionisation because it thinks this is in the interests of the business.

I genuinely get it that the working lives of retail workers, or dockers, or bus drivers are to most people in the the RI world a less interesting thing to look at than climate change, particularly if those workers live in developed countries and sound a bit thick. Engaging over these issues maybe doesn't have quite the same feeling that you are contributing to something important. But actually the ability of workers to bargain for a fair share is closely linked to inequality, surely quite an important societal issue.

It's a bad news story really: the decline of trade union strength is closely correlated with increased inequality, as an IMF paper pointed out last year. The effects might be two-fold, weaker unions mean that labour is less able to bargain for a fair share, but also reduce the countervailing power that once held corporate management in check. Is it any wonder that the US, with its weak labour law and numerous anti-union companies (and union-busting firms that advise them) is so unequal? So if you are concerned by inequality you should be concerned by companies that try to prevent or reverse unionisation.

Finally, I think it's important to flag up the issue of beneficiary interest and representation. I genuinely believe that RI policies and practices should reflect beneficiary concerns where possible.

There is a lack of good info on what beneficiaries really want to see in RI policies but some of the limited info we have suggests that they put more emphasis on basic employment-related issues than the ESG community as a whole does. If this is broadly correct this may be because they see a self-interest in it. We also know that beneficiaries want to get a decent return and are worried about getting ripped off. Therefore an RI policy that was generally rooted in beneficiaries' interests might have more to say about workplace terms and conditions on the one hand, and fees and charges on the other. To state the obvious we are long way from that, although this is broadly the territory that unions seek to occupy.

I do worry a bit that the priorities expressed in responsible investment can sometimes look like the liberalism of the well off and successful. We're very good at flying around the world to conferences and signing up to global initiatives. In contrast, bus drivers complaining about shift patterns or faulty heaters can seem rather dull. If you've never done a menial job, or struggled to get on at work, you may well consider some of the complaints that union members raise to be trivial, or whiny. But these are the people whose money makes responsible investment possible. Without their pensions you and me don't have jobs. I think they have a right to expect that their voice gets a better hearing than it does currently".

(hat tip chart to http://www.unionswork.us/)

Red Line Voting gets Green light to Save Planet, Respect Human Rights and Stop Fat Cats

I was really pleased to take part in the debate and vote in favour of the AMNT's Red Lines initiative which was approved at our summer conference on Wednesday this week. They cover a wide range of environmental, social and corporate governance issues.

Red Line Voting empowers pension trustees to make responsible investing a reality and will direct fund managers to oppose poor governance practise in companies where failure poses a risk to its shareholders.

Trustees bodies will be able to instruct fund managers to follow all Red Lines en bloc or a sub section.  It should not cost the scheme for doing so. Fund managers will have to comply with these instructions or explain why not and then run the risk of being sacked by trustees.

On environmental Red Lines the AMNT  worked with Carbon Disclosure Project and will be urging pension schemes to adopt them as they believe it would take climate change up the UK corporate agenda.

On social issues the Red Lines include trade union recognition, race equality, gender equality, commitment to equality monitoring and publishing the data, that companies should have a plan to introduce the Living Wage, and get rid of zero hours contracts.

On governance there will be a vote against the remuneration policy if any director is paid more than 100 times the average pay in that company’s UK workforce. Also on governance companies should have a tax policy stating what their tax practises are.

The AMNT are now planning to launch Red Line Voting in Autumn, in time for the 2016 voting season. They have have worked closely with UKSIF on the development of these Red Lines and major fund managers are already preparing to implement Red Line Voting instructions.

The big campaign now is to persuade pension schemes to adopt Red Line Voting, particularly those in pooled funds. Up to now investors in pooled funds were in practise unable to direct the engagement and voting on the shares associated with their investments. Red Line Voting gets round this. Fund managers may receive dozens of Red Line Voting instructions, but they are all the same instructions so they can then allocate votes pro rata. Since more than £2-trillion of assets under management in the UK are in pooled funds this could have a significant impact.

The AMNT has been granted £75,000 by the Joseph Rowntree Charitable trust over two years to develop and launch this initiative.

Red Line Voting is a revolutionary concept. I agree with "Responsible Investment" magazine that this is "a major evolution in UK Pension funds" but think "Engaged Investor" got it right when they called it "Power to the People: the new power for trustees to control fat cat behaviour".

Many people have been involved in the AMNT project on Red Lines but special mention to its Co Chair Janice Turner, who thought it up and was the driving force behind it and Co Chair, Barry Parr and Committee member, Bill Trythall. 

AMNT Summer Conference: London 24 June 2015

"The AMNT summer conference is set to take a historic step in the advancement of the rights of pension schemes to protect their investments by actively directing fund managers' engagement and voting at company meetings.

This is an extremely important matter: insufficiently robust governance of companies has led to corporate errors and misjudgments that have cost them - and in turn the investors - billions in fines, compensation, slashed dividends and drop in shareprice. Our pensions schemes are among those that have lost out.

Until now, the ability to set an engagement and voting policy for your fund manager has generally been confined to the largest pension schemes. Small schemes and those that invest in pooled funds have faced the reluctance of fund managers to allow you to set a policy. Some have been told that your scheme is too small to have anything to do with responsible investment.

However, for the last two years AMNT has been developing a new initiative called red line voting that would enable trustee boards to play an active role in directing policy on corporate governance, social and environmental issues. And not before time: current reports indicate that legal action is being threatened against some pension schemes that are failing to address environmental risks associated with the companies in which they invest.

Those of you who have attended our meetings over the last year have received our regular reports on our development of Red Line Voting. You may also have read the very favourable reporting of it in the industry's press. We have consulted widely across the fund management industry and have worked very closely with the UK Sustainable Investment and Finance Association (www.uksif.org) so we are confident that the Red Lines we are developing are workable. We have received the public support of the previous Secretary of State for Business, Dr Vince Cable has urged the fund management industry to work with AMNT to make it happen.

On 24th June we will put our Red Lines before you for discussion and invite you to vote them into existence. So if you, like the AMNT committee, would like all pension schemes to have the option of playing an active role in responsible investment, for the long term benefit of their schemes, then please come along to your summer conference and vote them into existence.

Joining us at our summer conference will be Saker Nusseibeh, Chief Executive Officer of Hermes and Faith Ward of The Environment Agency.

Pension freedoms

We will be sharing experiences of how the pension freedoms have panned out since April and will be hearing a rather concerning analysis of the largely unnoticed crash in the bond market last October. We will be finding out what alternatives there might be.

Please register now to secure your place at the AMNT's summer conference, which takes place at BNY Mellon.

Click here to join the AMNT for free and to register also for free at the conference"

Red Line Voting

"I’m writing to invite you to play a part in bringing into being, on 24^th June,  a new asset-owner approach to engagement and voting. It will open the way to restoring asset owner control over engagement and voting policies relating to investments held in pooled funds.

The Association of Member Nominated Trustees will, at its summer conference in London, be asking its members to vote to bring Red Line Voting into existence. Red Line Voting is a new approach developed over the last two years to address the problem faced by pension schemes that invest in pooled funds – the reluctance of fund managers to allow pension schemes to direct how the votes associated with their investments should be cast.

I consider this to be an extremely important matter. According to the Investment Association, of the £5-trillion of assets under management in the UK nearly half is invested in pooled funds. It is right and proper that the trustees of pension schemes should be able to direct the responsible investment policy for these investments. Up to now fund managers have said that it would be too difficult to manage multiple voting instructions from many pension schemes.

So AMNT has developed a new approach. With expert technical support their working group of member nominated trustees, of which I am one,  has developed a series of tightly drawn Red Lines – voting instructions – covering the range of environmental, social and corporate governance policies and applicable to all the companies in which the fund invests.  Pension schemes that choose to adopt some or all of them instruct their fund manager to engage and vote accordingly. The fund manager is at liberty to vote contrary to a Red Line if in their judgement that is the appropriate action, but they have to explain to the client why they did so.

Red Line Voting makes it easy for the fund managers to manage: they may receive instructions from many pension schemes, but they are all the same instructions so votes can be allocated accordingly.

This new approach will be of great assistance to the pension schemes that do have a responsible investment policy as it will undoubtedly lead to greater support for their policies when votes are cast. 

Many pension schemes that do have a corporate governance policy do not have a social or environmental policy, so Red Line Voting is a way to close that gap. And above all it will enable, for the first time, many small and medium sized pension funds to respond to the growing calls for them to protect their assets through responsible investing.

To take part in the June 24^th meeting you need to sign up to AMNT (it’s free) at http://amnt.org and then register for the conference (also free). You can also find more details about Red Line Voting on the website, and once registered as a member you will be able to see and comment on the draft Red Lines.

The conference is from 10am to 5pm at 160 Queen Victoria St, London EC4V 4LA.

I urge you to join and accompany me to the AMNT conference: with your support we will see the launch of a new surge in asset owner engagement with responsible investment.

Thank you

Best wishes,

John Gray"

View from the Coalface - The role of trade unionists as pension trustees

This picture is from the panel seminar last week at the "Workplace Pension 2015" conference in Birmingham.

I was with Bill Trythall, who is a fellow AMNT union appointed trustee on the massive USS Pension scheme. The chair was Louise Farrand from "Engaged Investor".

We took a number of questions from the chair and members of the audience on amongst other things - time limits for trustees on schemes; do trade unions help bring diversity and how can we tell if our pension board is any good?

My response (and since I was obviously not making notes I won't report on what Bill said) was "Yes", we should have time limits on trustees serving on a board. It is wrong that people like me have been on boards for 20 years. We need new blood and realistic succession plans. But so should all our professional advisors be similarly time limited to 5-10 years maximum. 

I think that trade unions do help drive the diversity agenda, since not only is equality and fairness a reason for our existence, we know that if a company does not recruit, for example, any women to its board, then it is is ignoring the potential talent pool from half the population. That is a bad business decision and ignorant companies who do so will suffer in the long term. 

This has nothing to do with political correctness but a well founded belief that companies who don't discriminate, do not  cause harm to its workers, destroy the environment, employ child labour or bribe public officials will in the long run be far more successful businesses to invest in than does that do.

My response to how we can tell if we are doing a good job or not as pension trustees will be to see firstly how we perform according to our benchmark, when compared to our peers and at our triennial valuations. But also we should see how open and transparent we are with our members and other stakeholders, do we seriously challenge our advisors, how realistic are our assumptions about future performance and liabilities, do we really drill down on all our fees and transaction costs and do we take our responsibilities as owners of capital seriously?

We ran out of time at the end but I think that Bill and I enjoyed the seminar and hopefully those who watched and participated did so likewise.

AMNT stall at Workplace Pensions Live 2015

On Thursday I went for a flying visit to Edgbaston, Birmingham to take part in a panel on the second day of Workplace Pensions conference.

The theme of the panel was "View from the coalfield - This session will explore the role of unions on trustee boards, and the conflicts union members may face in their interactions with employers and members".

I was speaking with Bill Trythall (see on right of picture), a trade union appointed director, of the massive university pension fund USS.

The session went okay I think and afterwards Bill and I joined our colleagues at the Association of Member Nominated Trustees (AMNT) stall.

I had to rush back to London for the Newham Council AGM. 

Red Lines - How to start an Investment Governance Revolution

(this post was pulled in January since I didn't realise that we had to wait until formal launch of Red Lines which took place yesterday. I will post further on this "revolutionary" proposal)

Picture is from last weeks workshop on "Red Lines" run jointly with the AMNT (Association of Member Nominated Trustees) and UKSIF (United Kingdom Sustainable  Investment & Finance Forum)

AMNT co-chair Janice Turner talks about her "Red Lines" idea to the audience.

Pension funds are blamed for being partly responsible for the crash of 2008. As asset owners they were "asleep at the wheel" and did not take their responsibility seriously and allowed the banks and financial institutions to nearly destroy our economy and seriously damage our investments.

What "Red Lines" hopes to do is to allow all pension funds regardless of size assert their rights of ownership on the assets they own and are responsible for. Small pension funds do not have a voice even though they are estimated to own £300 billion of assets. Large pension funds can afford to engage with their fund managers and the companies they own but they always lose important votes at company AGMs since most fund managers interests are not aligned with asset owner interests.

In a telling phrase from AMNT activist Bill Trythall (on left of photo) there are "Armies without generals and generals without armies".
 
Janice compared the current arrangements with the electoral system in the 18th Century when only the rich and powerful had a vote.

What  "Red Lines" is about is small and large pension funds, as well as a wide range of other charitable and ethical funds, agreeing a common set of Environment, Social and Governance (ESG) beliefs and instructing their fund managers to vote in a certain way or explain why not.

The devil will be in the detail of course but it should not be beyond the wit of man or woman to agree a common set of voting instructions to fund managers on issues based, for example, on the UK Stewardship Code or the United Nations Compact on Human Rights.

If companies do not comply with "Red Lines" instructions without good reason then fund managers should vote against the Board at AGMs and if fund managers do not comply without good reason, then they should run the risk of being sacked by trustees.

After speeches there were various workshops on how to formulate and enable "Red Lines". It is at an early stage and is going to be a time consuming and difficult process to bring about but potentially "Red Lines" will indeed revolutionise governance practices and bring about more responsible ownership and accountability.

Why is there no sense of crisis about the future of the LGPS?

The AMNT yesterday sent in a response (below) to the Government (DCLG) consultation on proposed new regulations on how to run the new look Local Government Pension scheme (LGPS).

The LGPS is collectively the biggest funded Pension scheme in the UK and the 5th largest in the world. There are at least 4.6 million people in the UK who are members of the £180 billion LGPS. Yet hardly anyone seems to understand that unless we are able to control costs and increase return then its entire future is in doubt.

"AMNT comments on LGPS consultation on amended Governance Regulations"

Introduction

The Association of Member Nominated Trustees is an organisation run by and for member‑nominated trustees, representatives and directors of pension schemes, both defined benefit and defined contribution, in both the public and private sector. Established in 2010, the Association now has about 350 members from occupational pension schemes with collective assets of approximately £250 billion.

These pension schemes range in size from £5 million to around £40 billion; they include defined benefit schemes that are fully open and those that are closed to further accrual or closed to new members. 

The AMNT membership includes LGPS member nominated representatives or observers. 

General Comments

Firstly, the AMNT wish to express their concern and disappointment that the government has not followed the proven private sector model of pension trusteeship with regards to the LGPS. Instead of a single partnership body made up of employer and employee representatives working in cooperation each of the 89 LGPS in England and Wales will have legally separate pension committees and pension boards.

The pension committee will continue to have no meaningful beneficiary representation in law. The only members of this committee that will be allowed to vote on decisions under local government legislation will be Councillors. It is likely that Member nominated representatives will continue to be “allowed” to participate and observe in a minority of LGPS schemes but there will be no legal right for MNTs or any beneficiaries to play a full role in the running of the scheme in the same way that their counterparts do so in the private sector.

The pension board will have some form of beneficiary representation but it is entirely unclear how these “employee” members will be selected or how its lawful role to "advise and assist" in the running of the scheme will actually happen in practice.

This appears to be confusing and unnecessary duplication. Instead of the usual co-operative approach found in the private sector trustee model, there may be conflict and disagreement between pension committee and boards. It is also unclear how such disputes and conflicts between a committee and board will be managed.

We do not understand why there is a requirement for board members to have prior experience. This is not expected of councillors on pension committees. Why is this different from the private sector where new trustees are given 6 months to gain relevant training and experience?

More detailed regulation is also needed with regard to ensuring that employee members of pension boards get sufficient time off to carry out their functions and that neither they nor their employers suffer  a financial detriment.

There is a clear democratic deficit compared to private sector pension funds. Why don't those who actual pay their own money into the pension have effective representation? Why should public pension funds be less democratic than private sector funds? The whole point of beneficiary representation is that you are more likely to get accountability and good governance since it is their money and their future pension at risk.

While in the past there was an argument that beneficiaries did not bear any direct financial risk this is now not the case. Under Treasury rules if the aggregate employer contribution for future accrual exceeds the cap of 13% then LGPS employees face benefits being reduced or contributions being raised. This could mean that more people would leave the scheme because it had become unaffordable and therefore risk the future sustainability of the entire LGPS.

It is therefore imperative that the LGPS is run as effectively and efficiently as possible. Costs must be controlled and return maximised. However, since the proposed scheme regulations are permissive, they do not comply in our view with best governance practice found in the private sector. How are funds that are being run inefficiently and poorly governed to be stopped from dragging down by poor returns the whole LGPS and breaking the employer cap?

We understand that a number of LGPS are already predicting that they will breach the 13% (19.5% with employee contributions) cost cap. When you think of the consequences if this happens then there should be a sense of crisis about the proposed arrangements and the overriding need to have accountability and good governance.

We appreciate that pension boards have to be in place by 1 April 2015 and some of the issues that we raise are the result of the Public Service Pension Act. However, there is a growing body of evidence that the proposed arrangements are contrary to European law and directives with regard to legal separation of the fund from the employer. This could mean further significant change.

The Case for the Living Wage - Why a Living Wage Pays Dividends

Thursday evening I went to a well attended ShareAction event to mark "Living Wage" week and the launch of their latest "Investor Briefing" on the business case for a Living Wage.

Rhys Moore, the director of the Living Wage Foundation, spoke first about the doubling of employers who now pay a living wage in the last 12 months. It is now £9.15 per hour in London and £7.85 in the rest of the country. The national minimum wage is only £6.50 per hour. The Living Wage is about 70% of the medium national income while the international definition for poverty is 60%. Last year there was only 5 FT100 companies who paid a living wage, now there is 19.

Rhys thinks that a living wage is becoming a norm for responsible employers. Research shows that 25% of workers who earn less than a living wage, do not work in a "low pay" sector. The foundation are about to launch a living wage "consumer movement" to encourage people to "buy" only at living wage employers.

Next speaker was Phillipa Birtwell from Barclays Bank, who is its "Head of Reputational Risk" and told us about their ground breaking agreement in 2004 with the community group TELCO, over cleaners being paid a living wage at their Canary Wharf offices. Even though only 200 workers were involved, the story went  "viral". The benefits of applying a living wage is a fantastic human interest story.

Lisa Nathan from ShareAction spoke about the investor benefits from a living wage such as staff retention and reduction in turnover, reduced absenteeism and improved morale leading to increased productivity.

As well as being a corporate citizenship issue there is also a macro economic growth argument since if those who are paid the least, get a pay rise, they will spend it locally and boost demand.

Finally, there was a panel (see my pretty rubbish photograph above) with Cllr Richard Greening, Chair of Islington Council Pension Fund; Janice Turner, Vice Chair of the Association of Member Nominated Trustees (AMNT); Sarah Smart, Chair of the Pension Trust, James Corah from CCLA and chair Catherine Howarth.

Richard explained how 98% of all its employees are on a living wage, the only major area that they are not is a Private Finance Initiative (PFI) providing residential care. As a member of LAPFF they are also trying to control executive pay. He believes that the living wage campaign is now at a tipping point and becoming main stream.

Janice from the AMNT talked about an exciting new initiative which could have an significant impact on the living wage. At the moment the vast majority of votes at company annual general meetings are automatically voted in favour of management. Fund managers who do this are not held to account. The AMNT in partnership with others, is trying to draw up "Red Lines" voting guidelines. Pension funds of all sizes could agree to adopt a common set of voting instructions on Governance issues. So it could (this is early days) mean that fund managers are instructed to vote against any company that does not have all its staff on a living wage and and no future plans to do so.

Sarah explained that the Pension Trust was a £6 billion pension fund that caters for the "not for profit" sector. While its primary purpose is of course to meet its pension obligations, she doesn't think that companies paying a living wage is a huge investment problem. Pension funds are for the long term and believe in responsible investment. The Pension Trust recently became a Living Wage employer. The contract cleaners in their head office in Leeds had a pay rise of £1 per hour which has made a big difference to their lives.

Last speaker was James from ethical fund managers CCLA who were hosting this event. He quoted sections from the famous classical economic textbook "The Wealth of Nations" which appear to support the arguments for a living wage. He pointed out therefore that both the author Adam Smith and the Bank of England argue for a living wage.

In the Q&A I made a comment that as a pension trustee we believe that we will get better returns in the long run if we invest in well governed and responsible companies.  For example, those who treat their staff well, who do not destroy the environment, bribe public officials etc.  As investors we must be concerned with the substainablity of companies whose entire business model is dependent on paying its staff poverty wages and being reliant on state benefits to exist. 

The Life & Times of MNTS - London Wednesday 26 November 10-5.30pm

Hello,
 

You are invited to the following event:

The Life & Times of MNTs

Event to be held at the following time, date and location:

Wednesday, 26 November 2014 from 10:00 to 17:30 (GMT) Sacker & Partners LLP 20 Gresham St EC2V 7JE London United Kingdom View Map

Attend Event

At our next event kindly hosted by Sackers we will look at the story of MNT's - how and why it all began. To see the agenda please click on the green ATTEND EVENT button. We hope you can make it! Wed 26th November The Life & Times of MNTs 10.00 - 10.30 10.30 – 12.30 ---------------- 12.30 – 1.30 1.30 - 1.40 1.40 – 2.20 2.20 – 2.45 2.45 - 3.05 3.05 – 3.30 3.30 – 4.00 4.00 - 4.40 4.40 – 5.00 5.00 – 5.10 5.10 – 5.15 5.15 + Training Registration / Coffee & Tea Training session  – Member Disputes Frequently encountered member disputes: an interactive discussion forum with case studies designed to share advice and practical tips -------------------------------------------------------------- Lunch / Networking Members’ Meeting Welcome / Introductions The Maxwell Affair and the Establishment of MNTs What really happened and could it ever happen again? Independent Governance Committees (IGCs) What are they, why are they needed and do they have any powers? Member representation in Public Sector pensions Tea & Coffee / Networking IORP II – What is it and what does it mean for MNTs? What (additional) roles should MNTs play in the future – if any? Feedback sessions Parish Notices Wrap up and Close Drinks & nibbles / networking