Lively Public Sector Pension Fringe #Lab15

This report is late but the affordability of public sector pensions schemes keeps coming up. Picture is of me taking part in my latest verbal duel with Michael Johnson (pink shirt on-the-right) on public sector pensions at the CIPFA fringe during the Labour Party conference.

The fringe was chaired by Kevin Schofield from Political Home. The first speaker (not in picture) was the new Shadow Minister for Work and Pensions, Nick Thomas-Symonds MP.  Nick argued the  need to build a new consensus on public sector pension provision and that fairness was top of his agenda. He then had to leave.

Michael is a former Investment Banker, Policy adviser to David Cameron and now Research Fellow at the Centre for Policy Studies. He is, let me say, a somewhat controversial and even provocative figure in the pensions world (and financial matters generally). 

He spoke about public sector pensions being responsible for fostering an "inter-generational injustice" and that they do not exist in the private sector and will not exist in the public sector either in the future. Interestingly he doesn't think you should look at claims of £1.3 trillion in liabilities for public sector pensions schemes. Since no one can agree on how to calculate liabilities. Instead he thinks you should look at the cash flow projections, and it is clear in his view, that they are getting worse and soon they will simply run out of money if nothing is done.

CIPFA speaker, Paul Woolston argued that we need to make some big choices and it is crazy that health is ring fenced but local government budgets are cut.

In the Q&A I challenged Michael about public pensions being unaffordable in particular the Local Government Pension scheme (LGPS) which is a funded scheme. While we are indeed being ripped off by the financial services industry, modern day defined benefit schemes are as sustainable and affordable nowadays as they have ever been. Millions of workers in the private sector still have DB schemes especially directors. Why are brand new DB schemes being opened in South Korea which has amongst the longest life expectancy in the world? The reason why DB provision in the UK private sector has declined is down to the unrealistic and outdated way liabilities are measured and not to do with deficits.

Michael did not accept this argument and claimed that new schemes in Korea cost 28% of wages. He did accept that the retirement age being linked to the State Pension did make public schemes more affordable.

The GMB National Secretary, Brian Strutton, veteran Councillor Dan Filson and feisty UNISON retired member, Moira Owen, all joined in the fun. Brian told Michael that the cash flow of the LGPS was improving not getting worse. Dan was unimpressed with the time given by the panel for the Q&A and Moira pointed out that she had worked long and hard for her pension and that the average LGPS pension was only about £3000 per year.

Michael, of course, was in his element, basking in all the controversy and arguments. 

Hat tip picture Moria.

NAPF Local Government Conference 2013

On 21st May I attend the National Association of Pension Funds (NAPF) Local Government Conference. The keynote speaker was the Minister for Local Authorities, Brandon Lewis MP.

Now I know many people think pensions is boring but there are 4.6 million people in the UK who are members of a Council pension scheme. Collectively they are all worth around £150 billion and if combined would be the 5th biggest fund in the world. 

The minister announced a "root & branch review" of Council pension schemes (LGPS) including possible merger of the current 99 separate funds. He said "things will change but nothing ruled in or out" at this stage.

In the Q&A I asked him what is the main driver for merger-  is it to save money or is it to save the economy through infrastructure investment?  He suggested that the LGPS is bigger than the Canadian public pensions schemes but does not have their scale and efficiencies (answer - main driver is to save money - but I am not convinced this is the reason)

Next we had "Implementing the LGPS 2014: from here to go-live".  First was Chris Megainey, a senior civil servant from the Communities and Local Government department (who was described as the"new Terry Crossley"). His big news was that the new governance arrangements for the LGPS would not be in place before 2015. Rodney Barton from West Yorks Pensions scheme spoke about the huge threat to schemes from the complex career average administration arrangements.

Brian Strutton from the GMB reported on the LGPS Workstream 2 "governance & cost structure" and the problems of trying to convince the HM Treasury that there is a difference between a funded and unfunded public sector pensions scheme (NB £150 billion of assets methinks!). There appears to be some sort of classic "fudge" agreed with different valuations being allowed.

My question to panel was while it is important to get the details right, LGPS 2014 and auto enrolment means there is a massive opportunity to increase membership into the scheme but this will need local and national campaigns. (answer from Chris that there is no national money available so will have to be local).

I then went to the "All Change: Employer security & the new LGPS" workshop. Schemes face grave problems if admitted body employers go bust without adequate security and also these employers face often massive termination debts when the last employee retires. I asked the question that to avoid these debts should employers apply to open schemes to new entrants? Especially since the LGPS 2014 has radically changed due to cost sharing? (answer from panel that some employers have indeed done this just to avoid existing debt. But this is a cynical response? Well, cynical or not it makes sense to me!)

Back to the main conference room for "The 2013 Valuation: Health Check Results" to hear Ronnie Robertson from Hymans Robertson. The 2013 valuation is likely to be the 3rd "bad" funding vaulation outcome in a row. Employers such as housing associations will find it "very scary".  He quotes Michael Johnson who describes underfunded pension schemes as being in a "death spiral".  The interest on deficits & less assets means the fund eats itself.  My question was is the real problem the way we measure liability? investments are up but liabilities are much, much higher. Gilt yields are at a 200 year low? Yet it drives the entire investment philosophy? (answer was yes but no but)

Next workshop was "Responsible Investment: what it means for the LGPS?" NAPF used this to launch a new report on RI here.  Dr. Craig Mackenzie from Scottish Widows pointed out how much things had changed since in past there use to be argument about whether RI was even legal for pensions to consider. My question is there hard data available that can show pension committees that RI not about hugging trees but delivers superior returns? (answer: Yes, lots of it)

The last business item of the day was to be a bun fight debate on LGPS merger. However it turned out to be a bit of a let down.  Edmund Truell from London Pension Fund Authority (for merger - and general world domination) and Nicola Mark from Norfolk Pension Fund (against merger) were too polite and reasonable for a great debate.

Edmund argued that in London alone they could save £120-200 million per year from merger and unless we do so we are essentially all doomed. Nicola counted that all new local government ministers firstly ask why can't we merge the LGPS? -  then they ask "how can we get our hands on this money". She pointed out that if there is a 1% change in the Norfolk £2.5 billion scheme investments there is a £25 million difference. If there is a 1% change interest rates its impact is £480 million

My question to both was if pension funds are supposed to act in the interests of beneficiaries and with LGPS 2014 there will be risk sharing with employees, what consultation have you done with beneficiaries on whether merger is a good thing or not? (from the rather wafflery answers clearly neither have done any such consultation. Which I knew already since I have members of my trade union branch in both schemes. So why do they think they can speak on their behalf?)

The guest speaker at the dinner event was former adviser to prime minister Tony Blair, Alastair Campbell. Who gave a typically entertaining and provocative speech. For once I did not ask any questions.

I missed the next day's session since I had to go to a Pension Trustee meeting.

GMB vote 95% in favour of LGPS: Further Misery for Miserablists

GMB member's of the Local Government Pension Scheme have voted by 95% in a secret postal ballot to support the new look scheme.

"Brian Strutton, GMB Public Services National Secretary, said “GMB members have spoken loud and clear.  The new LGPS 2014 proposals represent a fair and balanced outcome which means the pension scheme will remain affordable and sustainable; GMB members have recognised this as shown by the overwhelming vote in favour".

The UNISON ballot is ongoing. The ballot helpline close's tomorrow and the vote ends on 24th August.  Of course the UNISON miserablists are being even more miserable than usual at the GMB result. Does the GMB have miserablists or is it just an affliction that UNISON suffers from?

National Association of Pension Funds Local Authority Conference 2012

This was very informative and well organised conference taking place during an absolutely crucial time for the future of the local government pensions scheme (LGPS). I was there as a Councillor and member of the Borough LGPS Investment and Accounts committee.

I did “twitter” (in my case a very apt term?) during the conference (see hash tag @grayee and #napf).
The NAPF had amongst many other speakers the minster responsible for the LGPS, Bob Neill MP, the Deputy Governor of the Bank of England, Charlie Bean; the Chair of the Local Government Association, Sir Merrick Cockell (who in a Q&A I referred to as “Michael”) and from the unions, GMB national secretary Brian Strutton.

The Chair of the NAPF is Joanne Segers. By coincidence the first ever trade union pension course I ever went on was delivered by her father, TUC tutor Terry Segers. Proper old school ex-fire brigade union.

Considering the number of forthright and opinionated individuals present at the conference, the Q&A sessions were quite quiet, which gave a opportunity to a certain gobby part time politician and union rep to somewhat hog the floor during questions.

Key issues to me from the speeches and seminars were:- how Housing associations are “gagging to build new homes” which if happened could help us get out of recession like it did in 1930’s; the real problem in pensions is not in the public sector but that private sector pensions were destroyed by various incompetents; if you truly want diversity on company boards why not have employee reps on them? Are fund advisers really interested in good governance and making company boards accountable? It’s a “no brainer that LGPS should share services" (if so why not just merge?); in the current LGPS if you earn £150k per year you pay less in percentage terms net than if you earn £15k pa (this is wrong, wrong, wrong); What is the collective term for Actuaries? Answer “An invoice”; the new proposed £2 billion infrastructure fund and LGPS governance (a possible national Local Government Pensions Board?)

There was clearly an expectation by speakers that the future of the LGPS negotiations would have been finalised by now. But there is some last minute hic-cups. This is immensely frustrating but I suppose they do want to make sure, as far as possible, that there is no misunderstanding or ambiguities about the “agreement”. The ultra left trade union cry babies (the so called 0.8%ers) are of course still weeping tears at the prospect of no more strike chasing to bring about the revolution but we should have the final offer very soon.

It was good to see at the final session that the conference applauded DCLG pensions lead, Terry Crossley, who is retiring from the civil service. I have crossed swords (politely) with Terry for the past 10 years or so over beneficiary representation on the LGPS. I wish him well in his retirement and told him that if a deal is reached on a new look LGPS then he should have a new part time job and go out and sell the model to the private sector who are in desperate need of affordable and sustainable defined benefit pension schemes.