Consultation on LGPS Governance Reform.

These comments below are part of my response to a CLG consultation on the Local Government Pension Scheme (LGPS) governance arrangements.

It does appear to be a little boring but we are talking about managing over £100 billion and the pensions of over 3 million people.

The two main National UNISON arguments are:-

"Ministers must introduce the full requirements of Articles 8 and 18 of the EU Directive 41/2003 Institutions for Occupational Retirement Provision (There should be separate accounting from employer and funds should always act in the beneficiaries interests)

Ministers should replace that the voluntary exercise of improving member representation by a ‘Best Practice Guidance’ with statutory scheme member representation" (The voluntary approach to good governance has failed and we need proper statutory guidance)

All UNISON Local Government branches are encouraged to reply by 30th Sept.

I've added "There have been welcome improvements in member representation in the London LGPS but there is still a very long way to go. There are still far too many London funds that do not have any form of member nominated representation; some funds still treat them as observers who have no formal rights at all. None of the London funds meet the best practice standards found elsewhere in the LGPS “family” (e.g. Environment agency).

Some funds are still refusing to allow any form of democratic member representation. One London LGPS recently refused to allow even an observer on its pension panel since the proposed nominee had not previously served on a panel and therefore had “nothing to offer the panel”. While others just simply refuse to respond properly to our requests.

This is wrong since this is LGPS member’s money not the employers - it is their direct contributions and deferred pay. If it is accepted as a very positive thing that there is effective member representation in the private sector funded schemes then why are we in the LGPS being treated so differently?

There is no effective regulatory guidance on representation or competency. Some schemes have never provided any structured training for lay or elected members despite the fact they are legally responsible for overseeing hundreds of millions of pounds. An occasional briefing by a scheme advisor is not enough.

There is a lack of any firm guidance on facility time for employees to be representatives. Therefore it is often very difficult to get time off to be trained or attend meetings and to properly prepare. This adds to the difficulty of recruiting and retaining active member nominated representatives.

TUC pensions conference: “Weathering the Economic Storm”

Live post from Congress House. Pension conferences are a bit like London buses (under Boris). Yesterday I was at the Dutch TUC over pensions and today I am with some of the same UNISON colleagues at the British TUC over similar issues.

The TUC conference is the major pension event of the year for trade union trustees and representatives. There was some direct linkage. TUC General Secretary Brendon Barber mentioned in his keynote speech about poor corporate governance being a major cause of the current financial crisis. So in the Q&A after new Pensions minister Angela Eagle spoke - I put my hand up. My question was to ask the minister to support the long standing trade union policy of having really independent directors sitting on company boards. Particularly in financial services - appointed by pension funds who could bring to Boards the "common sense" trustee approach to stop companies taking excessive risk and paying excessive executive pay.

Angela gave a guarded but interesting reply. She supported the idea of “independent and fearless” voices on Boards who would ask the awkward questions and stand up to experts. She mentioned that the Chancellor is concerned about this issue. She then asked Brendan to respond further. Brendan took the opportunity to gently point out that the Government had recently missed an important trick over this issue by not appointing any truly independent people to run the UKFI which looks after government share holdings in the nationalised Banks. “Bankers to run Bankers” who recently approved the massive pay package for the new CEO of RBS. Governance is key and the government needs to give a new lead.

I think that the unions need to push this issue hard, also the Labour Party needs to dust off industrial democracy policies and think afresh. Better regulation is not enough, independent shareholder directors appointed by owners are desperately needed to see off the next financial crisis. Tinkering around the edges is not going to work and this is politically more clear red water between Labour and the Tories.

UNISON national seminar on Representation and Governance in LGPS

I am still playing catch-up with posts. This is on the seminar I attended last month on the Local Government Pension Scheme (LGPS). UNISON is leading a campaign to improve the governance of the LGPS. This is important to our members since a badly run scheme would result in its demise while it is also important for the wider economy. It the biggest pension fund in the UK with asserts worth £125 billion (2008). These asserts need to be managed effectively and safely. We have all seen recently what happens when there is there is poor governance and regulation of capital.

I see that the former head of the CBI, Sir John Banham, has written a report (RSA – Tomorrow Investor) “called for pension funds to take greater responsibility for how and where their money is invested, with trustees acting as ‘owners of companies’ rather than as ‘speculators in shares’…investors must ‘bridge the ownership gap’ and insist that fund managers only invest in companies where they are fully satisfied about the long-term potential for business.

All other funded pension schemes in the UK have statutory obligations to have member nominated trustee representatives involved in the governance of their pensions. This was to stop Rogue Company bosses like Maxwell stealing from pension funds and because it as felt that the best people to scrutinise the running of a pension scheme would be the representatives of the savers. This view was endorsed in a number of government reviews (Myners Report for one).

The LGPS has no such statutory obligation. While there is a Government “best practice” guide, which encourages member representation. There are no real sanctions against employers who wish to continue to run their schemes in secret and without being held to account what they do with other people’s money.

It was a well attended event with existing “member nominated representatives” (MNRs) and people interested in becoming MNRs from all over the UK. Keith Sonnet, the UNISON Deputy General Secretary was the keynote speaker. National Officer, Colin Meech gave an update on negotiations with the CLG. The CLG have now conceded that they need to change the scheme to comply with EU and British law. There was a legal briefing by Ivan Walker from Thompson’s solicitors followed by two different workshops in the afternoon. Finally, UNSION Pensions officer Glyn Jenkins gave an update on the negotiations with the CLG over LGPS benefits (as opposed to governance). The campaign continues.

(I will add photos of event another time)

Why are Company Personal Pension schemes allowed to have such rubbish governance?

During last week’s TUC Pension Trustee conference, Robert Laslett, Chief Economist, Department for Work and Pensions was responding to questions after the Minister, James Purnell had to leave. I asked him the question “Why is it that company Personal Pensions schemes don’t have decent governance arrangements in the same way as other workplace schemes? If member nominated representatives in Trust pensions are recognised as being so important in making sure that pension funds are run properly than why not the same for other schemes?”

Robert batted back with the factually correct answer that Company Personal Pension schemes are individual contract based schemes belonging to the pension contributors.

Let me now try and “ungeek” this question and explain why I think this is a really important issue and one that will become even more important in the future.

Traditionally, company pension schemes in this country have been set up on a “trustee” basis. In well run schemes trustees are elected from workers and management to supervise the scheme and make sure it is safe, well invested and properly funded. In recent years trustees have been given more powers and responsibilities. This is not only because of rogues such as Robert Maxwell and the collapse of some pension funds when employers have gone bust. But, due to the size of pension funds and their impact of their investments in the economy as a whole, it is vitally important that that their investment decisions and strategies are properly thought out, managed and implemented. For example the Local Government Pension scheme alone is worth over £130 billion nationally, mostly invested in British companies. Check out the Myners Report.

There is also the principle that pension funds are owned by workers, it is their deferred pay. Since they are owners of this capital they need to exercise their responsibilities of ownership. They will want their representatives on the trustee board to make sure that their money is invested in companies that not only give good financial returns but are also properly run. People do not want their money invested in companies that employ child labour, ban trade unions and destroy the environment. Equally they want to make sure that the companies that they invest in do not reward greedy executives for failure, buy or merge with other companies that do not create value and are generally run in the true interests of the owners (pension members) not the senior management or their City advisors.

In recent years for a whole range of reasons (to my regret – but this is a different matter) traditional trust schemes have been in relative decline and most companies today offer so called Contract based Group Personal Pension schemes or stakeholders. Members of such schemes generally invest via payroll in the pension funds of large insurance companies and usually the company also pays into the holding. There are no trustees or member representatives to check on the administration of the scheme and more importantly, to look after what happens to this money once it reaches the insurance companies.

How do workers know that their money is being invested safely, properly and responsibly? There are now hundreds of billions of pounds invested in companies all over the world by these insurance companies. The market is getting bigger every year.

So, if it is a recognised “good thing” (the “unsung heroes” of financial services) that you have member trustees looking after trust based pension investments then why should we not have member representatives looking after contract based pension investments? Why is one “good” and the other “bad”?

The good(ish) news is that afterwards I attended a workshop run by the Pension Regulator. They regulate such schemes (“approved workplace pensions”) and have published a good practice guide on “Management committees” for administration and governance issues for work based contract pension schemes. These committees would involve employers and employees. So far this is voluntary and does not really address ownership issues. But I suppose this is a useful start. We need to change pension law to address this. This is in the interests of pensioners and the economy.

Have a look at Tom P post on “Investor Suffrage” which I think is a possible way forward. I’ll hopefully also post soon on David Pitt-Watson’s thought provoking speech at the conference which is also relevant.

Hopefully, I have explained the things properly and you release that this is a huge issue. If not, then it is my fault for not explaining it adequately. If you do understand then you are well on your way to becoming a Pension Geek!

“The Battle for the LGPS Governance”

Today I went to the first UNISON national seminar on the Local Government Pension Scheme (LGPS) -“Representation and Governance” in central London.

While I appreciate that for some strange reason, many folk do not appear to value the governance arrangements of the LGPS. I and about 75 others from across the land disagreed and had made our way to the NUT headquarters in Kings Cross to take part in this event.

The seminar was chaired by UNISON NEC member Jane Carolan and the opening speaker was UNISON General Secretary, Dave Prentis. Dave pointed out that the LGPS had an estimated 3.6 million members and the total value of all investments in the scheme was around £125 billion. How well this scheme is run is actually of importance not only to scheme members, but also to some extent, the wider British economy.

There was a number of speakers including the “enemy” (joke of course) CLG civil servants Bob Holloway and Terry Crossley. By co-incidence, both the CLG and UNISON speakers, used the same photo of the first major pension thief, Capt Bob Maxwell, in their presentations. He of course, stole hundreds of millions of pounds, from the “Mirror” pension scheme.

The presentation on the LGPS and EU Directive 41 “Institutions for Occupational Retirement” (aka “IORP”) was, believe it or not, absolutely fascinating.

In the past there has been a dispute between senior civil servants and union negotiators whether the LGPS was a “Bath” or a “Sausage machine”. Today, we also learnt that there was a discussion on whether or not it was a “duck” as well? The plot thickens.

It’s getting a bit late and there was too much to post tonight. So I will post various stuff I found interesting later on in the week.

Update: I forgot to mention the Maxwell connection and the LGPS. In order to stop pensions theft and other bad practices the Government commissioned the Goode Report. One of the recommendations of this report was that the LGPS should have staffside representation with statutory rights (short of voting rights). However, due to "opposition" from employers this was never implemented. Why?