TUC Pensions Conference 2023: "Pensions in a Cost of Living Crisis"

Yesterday I returned to Congress House, the TUC headquarters for its annual pension conference. This event involves union officers, pension trustees and activists with expert presentations/Q&A and workshops. It was great to be back in person at long last. I am a UNISON appointed employee member of a LGPS Pension Board and the Local Government trade union appointee to the London CIV. 

The theme this year had to be "Pensions in a Cost of Living Crisis". Below is based on my tweets during the day. Not a comprehensive report on all the presentations since I was trying to pull together and send to my employer a pay claim while listening. 

I was lucky to be picked by panel chairs to ask a number of questions. I was sitting in the front (as normal) and wearing my lucky blue checked shirt. 

Great to be back at

@The_TUC

for its #pensions conference. Open by new General secretary

@nowak_paul

& 1st keynote speaker David Pitt-Watson (good to see again)

@theRSAorg

 

David speaking persuasively on the case for #CollectiveDefindedContribution #pensions. DB best - since employer guarantees, but DC annuities worse since invest in low return gilts. #CDC 30% better DC. (Or even #CollectiveDefinedContribution #CDC. I will post more on CDC.

Now important panel on improving trustee diversity & inclusion Chair Janice Turner

@bectu

, Westminster LGPS,

@unisontheunion

@unisonglr

Chris Smith & Zoe Burdo from

@LCP

(thanks for the name check Chris)

Keynote speaker Shadow DWP secretary

@JonAshworth

MP speaks about proud record on #pensions by

@UKLabour

& unions but now must undo when in power years of #tory pension failure

Labour’s priorities for pensions: Economic growth underpinning a growing state pension Support for older people who want to stay in work Expanding auto-enrolment

My question to

@JonAshworth

would

@UKLabour

reconsider role of #DB pensions? My #LGPS is now 123% funded. Lots of colleagues here in Private DB have had their funds closed unnecessary. Also, do you share concerns about employers breaking #tupe & #pension promises?

He asked for clarification & yes to concern about employers breaking pension promises

Panel on Extending working lives. #TUCpension23 being addressed by

@unisontheunion

National Officer Teresa Donegan on #unisoncollage & member learning.

Final Panel: Big ideas to fix the pension system Chair by former Labour pension minister

@greggmcclymont

now with trade union owned

@IFM_Investors

Gregg McClymont

@greggmcclymont

·

Mar 1

Replying to

@grayee

and

@IFM_Investors

The ideas - state annuity, state pension as property right, public asset manager - certainly lived up to the ‘think big ideas’ challenge

Since this was the TUC, of course, the event had to finish with some "beer and sandwiches" (well, crisps and nuts). At which I was given a great compliment by the legendly pension figure, Con Keating "I see you are still causing trouble John".

Climate risk: stranded assets, fracking and CapEx challenges LAPFF 2013

It is not often that you see a Texas based oil and gas executive in a UK debate on climate risk.

This was the last presentation of the day.  Chair David Pitt-Watson started the debate by pointing out that there is more carbon in the ground than we can burn and if we were able to burn all the carbon we would fry. He also contrasted how much is spent on oil and gas exploration with that on developing green technologies.

If the financial crisis of 2008 was predictable since they were giving mortgages to those who could not pay them back then the forthcoming carbon crisis is equally predictable and with greater consequences the loss of 10 points GDP.

Craig Mckenzie, Head of Sustainability at Scottish Widows (left) spoke of the risk that oil and gas companies were being valued on the basis of unburnable carbon reserves and investing in production capacity that will never be used. Is the coal mining industry on a death spiral? Is there an oil "cost curve" which means that the oil price will fall and companies will not generate a return for expensive wells?

A good point about fracking is that you can close down coal power stations, this caused a fall in carbon emissions in USA to 1994 levels. The downside is the greater use of water in extraction, danger of polluting groundwater, it may cause a methane leak into atmosphere, earthquakes and disruption.  The benefits may out sway the downside but not everywhere.

Faith Ward, investment adviser to the UK Environmental Agency pension fund (on right) spoke about their audit on carbon footprints of the companies they invest in and the "Green Light Report" by ShareAction. She believed that LAPFF can provide leadership to long term investors on the risks of climate change.

The last speaker was Sarah Teslik from the oil and gas Apache Corporation.  She started by saying she is happy to play the villain and will not deny everything that has just been said. But the average length of time for a company in the US S&P or UK FSTE index is only 11-14 years. They don't stay that long despite all companies saying they have a bright future. She doesn't share everyone's confidence about making predictions over the next 20 years. When she was younger she was an environmental campaigner. Every claim made about the future at that time has proved to be wrong. 

There is a false argument about the "stranded assets" issue. We have gone through half of the worlds carbon reserves in the last 100 years that took 300 million to make. It is false to suggest that  "reserves" will have to be written off. The rules on reserves is highly regulated by the USA regulator the SEC. They are 3 types of reserves - probably, possible and proven. "Proven" must be ready to produce tomorrow.

"You should sweat about the other stuff... Oil wells are getting more expensive.... Sun power and oil are all energy.... its the getting to it that costs....what should keep you up at night is the geopolitical risk.... 90% of reserves are not in the "West".... They are in other countries where they naturally want to run things themselves and often they don't care about return but want to control supply for strategic reasons.... this is what should worry you". Finally she concluded that technological change and advances could solve the problems associated with climate risk.

There was quite a sparky but constructive Q&A with David getting some stick about not being a "neutral" chair on this subject. While I am firmly in the "sweating" camp about the risk of climate change it was good to see a polite, well argued and informed debate on this subject.

Audit and Accounting (IFRS) LAPFF 2013:

This presentation was one of the most important and the first of a few LAPFF reports on how those who are suppose to be protecting us in financial services are letting us badly down (or even much, much worse)

Tim Bush from PIRC spoke first on "Getting the numbers right - a progress report".  This is an update on this LAPFF report
"UK and Irish Bank Capital Losses - Post Mortem"

Tim described how his fellow speaker, Iain Richards (bottom left) had originally wrote a paper "Bringing Audit Back from the Brink" in 2004 and how he was attacked and smeared by the Audit "profession" over it.

It is now pretty clear that the Banking Crisis was caused at least in part to the failure of the standard setters in the accounting profession. These standard setters "lost the plot" and the Financial Standards Agency (FSA) went along with it. There was since a "cover up". Rather than admit that the numbers were wrong they choose to "complicate, distract and confuse".

Banking losses are even now not fully disclosed. The Bank of England agreed (Nov 2012) that the undeclared losses in UK Banks are nearer to the £50 billion that PIRC originally estimated. Our investor coalition went to QC George Bompass for legal advice. He said that UK Company Law prevails over accounting profession standards.

This is vitally important since the audit profession makes the crazy, ludicrous claim that the accounts they "passed" of Banks that were now clearly insolvent, conformed to their standards at the time (if not the law). - so that is alright then?

What this investor coalition want is audit standards that are "true and fair value", prudent and maintain capital.

Iain spoke about how the European Union seem likely to insist on the retendering of company auditors after 10 years and the mandatory rotation after 20 years. This is not ideal but it at least establishes some important principles and is a tangible change at last.

But the real issue is the "diabolical audits". The banking collapse was entirely predictable. Auditors acted within flawed industry standards and not the statutory law. "All that matters is we comply with standards".  This is a great game of musical chairs and word play. We must get auditors to adhere to the legal framework.

My question to the panel is that without being too conspiratorial how much are such "conflicts" in company audits driven by the cross selling of services by audit partners e.g, investment advice.

The EU had suggested originally that firms should be only auditors but due to to massive opposition and lobbying this was dropped. In Germany this happens and the auditors are genuinely respected, do a good job and also make money.

A very interesting comment by David Pitt-Watson that he use to work for a large accounting firm and that there are still good, honest people in these firms who want to do the right thing. 

It was suggested that this is very true and that Tim and Iain get a lot of secret help and support from individuals in these firms however the governance of these firms over international standards is at least as bad as the discredited football regulator FIFA. If not worse.

I personally don't follow or to be honest, give a toss about football, but I do care about my pension scheme members, who trusted and paid large amounts of money to those so called "professionals" to audit the accounts of the companies their funds were investing into - it is now clear that we were all just being scammed and ripped off.

Unbelievably they want nothing really to change and still want to rip off pensioners, orphans and widows in the future.

Activist investor panel: Does activism enhance company value for investors? LAPFF 2013

David Trenchard from "activist managers" Knight Vinke (on left of photo) target large companies which they believe have hidden value.

They aim to challenge the status quo and unaccountable management. They do not believe in the USA model of activism which is seen as being aggressively litigious.

Alex Pauisco from DBAY advisers (no link on Internet? on right of picture) currently concentrate on small companies. While investors traditional sell shares in companies they think are not run properly they buy more in order to change. Jurisdiction is key. In Asia activist managers will lose money. In the US it is tough since you have little rights. Europe is good because shareholders have rights.

Bryan Schneider was last speaker (2nd left) from Entrust capital who invest in hedge funds. They use research to invest in the best of class. They manage billions of dollars and their aim is to unlock value by investing on track records and references.

In Q&A I said that I could understand that by exploiting market inefficiencies they can make money but surely pension funds are about long term investments over 20 years not "4 to 5". How do they respond to the accusations that they are creating short term value by destroying it in the long term.

The Chair, David Pitt-Watson said this used to be called "asset stripping".  Alex said they follow the advice of legendary USA investor Warren Buffett that they only buy if want to own all the shares in that company and want to hold them forever.

"Licence to Operate. Holding Companies to Account" - LAPFF Conference 2013

Chair of Local Authority Pension Fund Forum (LAPFF) Cllr Kieran Quinn welcoming members to the 18th Annual Conference in Bournemouth this morning. The theme of this years conference is "value for money" and holding asset managers and advisers to account. 

LAPFF is a member organisation of Local Government Pension schemes (LGPS). Its purpose is to promote the investment interests of its funds as well as encourage social responsibility and corporate governance. Collectively it has £115 billion of assets.

Next was an introduction by former Hermes fund manager and joint author of "The New Capitalists" David Pitt-Watson, who is now at the London Business School.  David referred to the changes in Governance that has taken place since The Cadbury Report of 1990.  He called it a "journey not a destination". Companies we own should be doing what we want them to do. At the moment David is writing a new book on Finance.

David made an important final point that it will be no good if you have a good pension but retire in a world that has been destroyed by climate change.

The conference will finish tomorrow lunch time. I'll try and post on as many presentations and speeches as I can.

Our Money, Our Business: Building a more accountable investment system

Yesterday evening I went to the launch of two new reports by ShareAction at the Nuffield Foundation in central London. Chaired by their CEO, Catherine Howarth.

Christine Berry from ShareAction presented on the reports "Our Money, Our Business: Building a more accountable  investment system" and "Engaging savers with stewardship and responsible investment".

Christine argued that in light of pension auto enrolment we need to revisit ideas such as those expressed in the book by David Pitt-Watson, "The New Capitalists", since there will now be a huge expansion of share owners. However, at the moment share owner governance is a "dead duck" and we need to reassert the legitimacy of shareholders as owners. We also need to counter the idea that no one is really interested in what happens to their savings.

Research by the Pension Trust (whose chair Sarah Smart was sitting in the same row as me) suggested that its members were not that interested in whether their fund was invested in the traditional "sin stocks" (such as tobacco) but were interested in environmental issues and labour rights.

The first speaker was Mark Fawcett from NEST who pointed out that in modern day Direct Contribution (DC) schemes, savers are exposed to all the risk then it is likely that members will have to take a more active interest in their savings (whether they like it or not).

Roger Urwin from advisers, Towers Watson, was concerned that the reports were important but maybe heavy on aspiration and light on what could be catalysts to bring about change.

Charlotte Black, from high net worth private investor manager, Brewin Dolphin, thought this was an important issue and could show the good side of capitalism but her 120,000 investors had never used the proxy share voting system she had put in place.

My question to the panel was that we need to have better and stronger representative democracy by a elected trustee based model. Advisers are very important but they do not have the fiduciary duty or mandate that elected member nominated trustees will have. Saying that, trustees do have to raise their game and become better trained and more assertive but they do need support.

(good luck to Christine who is soon leaving ShareAction for a new job.)

How we pay for the City (& expensive Red Wine)

I recommend that if you have a funded Pension that you listen to this excellent Radio 4 programme "How You Pay for the City".  

Former fund manager David Pitt- Watson pointed out that excessive charges in the UK compared to  Holland means that the average comparable dutch pension will be 50% more than you would get in the UK.

While the incomparable Mr Colin Meech, UNISON National Officer for Capital Stewardship, thinks that the Local Government Pension Scheme is just being ripped off. He recounted how a colleague who became a fiduciary trustee on a large scheme was shocked to find that the trustee board spent more time being wined (at £100 per bottle!) and dined by fund managers than they spent supervising the scheme. I have heard the same story from that colleague.

It is not just excessive fees by fund managers but also "churn" (excessive buying and selling of stock); stock lending (they lend out your share certificates for a fee), "Custody Banks" (if something is too good to be true...) and "transitional management" (there is a completely shocking story how the Royal Mail Pension fund was cheated and how a judge was told that an untruth was not a lie)

By coincidence we heard similar arguments at the AMNT Summer Conference from Michael Johnson that I posted upon yesterday.