There is No PPF or Crown Promise for the LGPS Pension scheme which must be run in the interests of pensioners and not the employers

To be clear.

A Council (or administering authority) is responsible for the majority of any pension deficit but that if the fund does badly and the Council runs out of money (which due to austerity it has been widely predicted will happen to some authorities)

- who will pay the pensions of our staff and their dependents?

If a private sector pension scheme gets into trouble, there is the pension protection fund which will step in to save it.

There is no Pension Protection Fund for the LBN Staff Pension fund or any local authority fund

If a civil service pension scheme runs into trouble there is a "Crown Promise" by the Government to step in and pay pensions.

There is no "Crown Promise" for the LBN Staff Pension fund nor any Local Authority Pension. 

This was recently confirmed by QC Barrister advice to the National Pension Board.

By law Pensions schemes must be run in the interests of the beneficiaries and not the employer. 

Keep Osbourne's thieving hands off our Pensions! Sign the UNISON Petition

At the same time as Tory Chancellor George Osbourne, is trying to steal jobs from steel workers, benefits from the disabled, tax credits from the working poor and homes owned by Councils, he is also trying to plunder the local government pension scheme (LGPS).

The government is seeking powers to direct Council pension funds to pay into their pet infrastructure investment schemes and even interfere in the day to day running of the £180 billion funds and make them only invest in accordance to the current UK Government's foreign policy.

Ironic for someone who claims to be a small state Conservative and is refusing to nationalise the UK steel works because he believes in "free markets" and that the government shouldn't own anything.

It may be that the local government pension funds should invest more in infrastructure but they should be the ones making that investment decision after receiving proper advice, since they will have to carry the can if it all goes wrong. There is no "Crown Promise" nor even the tender mercies of the Pension Protection Fund for these schemes if they make the wrong investments decisions and go belly up.

British foreign policy is also notorious for recognising and supporting nasty, corrupt, totalitarian regimes but putting aside any ethical issues for the moment, that doesn't mean that these countries are suitable investment choices for council pensions funds to put their members' money into. Such regimes are often economic basket cases and not safe for pensions..  
 
Since there has been no debate in Parliament on this "nationalisation" UNISON is encouraging its members to sign this Parliamentary Petition https://petition.parliament.uk/petitions/125475 (see below) to get a debate in the House on this matter.

5 million people rely on the LGPS to pay their pensions. Government wants powers over LGPS investment funds, but they could gamble away members’ money on infrastructure projects. This is not allowed in any other UK scheme, including the MPs'. The LGPS must be invested in members’ best interests.

Parliament must debate this issue and make the government accountable for these powers of intervention as any such direction may breach the law. Specifically Article 18 paragraph 3 of the EU Directive 41/2003 Institutions for Occupational Retire Provision: “Member States shall not require institutions located in their territory to invest in particular categories of assets.”

Sign this petition

AMNT Meets Shadow Pension Minister Gregg McClymont MP at House of Commons

On 27 November we had a special Open meeting for AMNT members at the House of Commons. 

Beforehand there had been a brief tour of Westminster Hall.  Then  40 of us were in a Committee room to hear Gregg McClymont MP talk about the UK pension landscape and then take part in a Q&A.   

He reaffirmed Labour Party policy that they will be looking to introduce in any future Labour Government beneficiary governance for all pension funds including contract schemes. This is not a panacea for all wrongs but to ensure value for money.

He also wants a Fiduciary duty for everyone in the investment chain.

Next was presentation by David Heslop from the Pension Protection Fund who painted a positive picture of the PPF and they believe that if things go to plan they will not have to levy pensions by 2030.  

 Our AMNT  joint Chair’s Barry Parr and Janice Turner also gave an update on our recent activities and plans for the future.

Afterwards as a contrast, we went to the offices of fund managers Evercore Pan-Asset at Queen Anne’s Gate and had a presentation by the chair of their investment Committee RH John Redwood MP on the state of the global economy and what this means for pension funds. This was followed by a drinks and nibbles reception.

Defined Benefit Valuations: Hilary Salt from First Actuarial - TUC Pension Trustee Conference 2013

The 2nd speaker on the TUC "Defined Benefit valuations" session after Con Keating was Hilary Salt, from First Actuarial.

Hilary asked what was the purpose of a pension scheme? Answer: to pay the right amount of money at the right time.

Assets are needed to make sure that the right amount of money is available to pay the pensions as they are needed. Other issues such as
Liability-driven investments (LDI) have no impact on the amount of pension and are a distraction.

The argument that you need assets to pay for the last man (or women) still in the scheme is self defeating.

You should focus on future income streams. Valuations should be periodic checks but you need to play the ball from where it is and look forward, not look back.

Valuations are used for the wrong things. Expensive "Buy outs" by of schemes by insurance companies are irrelevant since the Pension Protection Fund (PPF). 

Accounting valuation funding is too short term, buy outs are irrelevant, "Flight plans" or "Glide paths" just move assets into bonds to reduce risk and import the inefficiencies of Defined Contribution (DC) schemes into DB.

Hilary had a Q&A after the presentation with Con chaired by Nicola Smith from the TUC. I asked them the question "What should we DB pension trustees should do next about the "scare mongering" about deficits that we have heard about".

Con said we should be prepared to challenge our actuaries. They do not use true and fair value. While Hilary said we must be ready to challenge the Regulator over valuations.  It can't be right that its okay if the reason that no one loses a pension is because they never had the chance to have a pension in the first place.  (Think about this)

Usual health warning that my hurried notes on these presentations on my Blackberry may not be an verbatim acount.

PS It was good to see Jimmy Nolan, former trade union trustee from the Liverpool Docks pension scheme at the conference ask a question. For as long as I have been going to TUC pension conferences, Jimmy has always been there. 

Only worry about your pension if there is another Russian Revolution...

I recently went to an "off the record" Chatham House rules debate on whether closed defined benefit pension schemes should invest in equities (shares) or not?

Now, I doubt very much that all that many people will share my keen interest in such matters, but if you currently contribute to a funded defined benefit pension scheme or if you have a frozen one from a previous employer then you should. 

This is your money, your "deferred pay" and unless you at least try and take an interest in it then who will you blame if it all goes horribly wrong? 

The argument goes something like this. Pension funds which are "closed" (for some reason it wasn't made clear in the debate but I assume it was funds that were closed to new members and future accrual of pension benefits by existing members) are concerned about the long term not the short term and that the strength of the employer "promise" to the scheme to fund it until it pays out all its obligations is more important than anything else. Such schemes can afford to hold illiquid assets which have attractive tax efficient returns with a low probability of risk. So why invest in risky, liquid and unstable equities? 

The alternative argument was that equities should be part of a mix of investments. Admittedly returns in equities in recent years have been appalling but "No means Never" and you should not throw the baby out with the bath water. UK Pensions PLC have massive pension shortfalls in funding liabilities and the only way to close this gap is the long term historic out performance from equity investments. Past performance is not guarantee of the future but the long term equity premium over bonds is an accepted market compensation for risk. 

Why this is important is that if the trustees of your pension scheme gets this equities and/or bonds decision wrong, then your scheme may end up in the tender mercies of the Government Pension Protecting Fund (PPF).  The PPF is a very good thing but most people would lose out financially if their pension had to be rescued by it. 

So the lesson is if you are in such a scheme then take an active interest in it and in the trustees that run it on your behalf. Read the stuff they send out to you, ask questions, take part in elections of member nominated trustees, turn up to any meetings and even consider standing yourself to be a trustee. Make sure that your scheme is run in the interests of the beneficiaries and not by any vested interests (and there are many). 

Apparently there is an argument that the only real danger to equities not out performing bonds is if the economy suffered from something completely dramatic as the Russian revolution of 1917. 

I hesitate to point out that next week is in fact the 95th anniversary of the Bolshevik Revolution and the Storming of the Winter Places. I hope they will keep "Pleb Gate" locked up for this anniversary.

Update: I have just been reminded that the number one issue with closed schemes is that they cost far, far more to run when closed than if they were kept open. Pension funds need new blood, new contributors to stop them becoming mature and cash deficit. Millions of workers are simply being cheated and conned out of a decent retirement while employers are often being mislead and badly advised. While many DB schemes and Government regulations need to be updated they do not have to be closed. If they are closed then it is in the real long term interests of the workers and employers that they should be reopened. 

"Pension schemes need urgent rule change"

Catching up after annual leave last week. Just read Janice's important letter on pensions published in the Guardian on 25 July.

"Phillip Inman's welcome report on the dire state of private sector pensions (No wonder ministers are panicking over pensions, 23 July) nevertheless omits one major reason for the horrendous deficits of defined benefit (ie final salary and career average) pension schemes: a couple of clauses buried in the 2005 Pension Regulations. The clauses force defined benefit schemes to conduct valuations using methods derived from free market theory: basing scheme projections, decades into the future, on the state of the markets on one day. If the markets are fine, the pension fund is fine. If not, schemes are in trouble. These rules have caused wild volatility: no one has a clue about how big their deficit will become. Last year the Pension Protection Fund reported DB schemes' combined deficits as £8.3bn. A few weeks ago they passed £300bn.

The Association of Member Nominated Trustees, whose members are trustees of pension schemes with collective assets of about £200bn, says DB schemes must be enabled to ride out short-term market volatility by smoothing the valuation – taking an average of asset values and gilt yields over several years. The PPF has adopted this method for itself. What's good enough for the PPF is good enough for the schemes that fund it. The AMNT has submitted rule changes to the Department for Work and Pensions, and our views are shared by organisations such as the CBI and the National Association of Pension Funds.

This may sound like a dusty technical issue. But what's at stake are the pensions of more than 2 million working people, and the chance for the millions coming after them of having a decent pension.
Janice Turner
Co-chair, AMNT

AMNT Presentation to Irish Banking Trade Association

Yesterday, during a visit to their headquarters in Dublin, Janice Turner, the Joint Chair of the Association of Member Nominated Trustees (AMNT) and I gave a 45 minute presentation to the Irish Bank Officials Association (IBOA) National Executive Committee.

The IBOA represents 22,000 finance workers in the Republic and Northern Ireland. It has has been very supportive of the AMNT and its lay pension trustees NEC have played a key role in our growth. Their members are in Defined Benefit (DB) and Defined Contribution (DC) pensions schemes.

Being finance workers they are acutely aware of the value of pensions and the threats that all their schemes currently face. The employer pension "promise" and "covenant" is under attack. For example the UK regulated Banks suffer from unnecessary and damaging accounting standards while in the Republic there is also no equivalent of the Pension Protection Fund (PPF).  This needs to be challenged.

I think that the IBOA committee members and officers appreciate that the AMNT is the only organisation that is run solely by member nominated pension trustees who want to not only defend and promote DB but also want to improve all DC schemes as well.

At some point in the future it would make sense to try and organise local pension training and briefings by the AMNT outside London. 

Many thanks to the IBOA for the warm welcome and hospitality they showed to us during our visit.

Red Rose-tinted Glasses and the Pension Protection Fund

Another excellent post by ex-TUC pensions expert, Tom P, in his “Labour and Capital” blog. Tom has a dig at the Tory dominated Financial press who constantly attack the government for “interfering” in their industry. If they were just left alone everything would just be sweetness and light. Yeah.

It beggars belief that anyone in the British Financial services industry think that they can rest on their laurels and be trusted to be left alone? Time and time again, the industry has proved itself incapable of self-regulation and driven by short term self interest. I’m not just sticking the boot in over present day difficulties over the US sub-prime mortgages and Northern Rock. In my life time, there has been a constant drip-drip of financial crisis’s and scandals by so-called “respected” Financial institutions. Do I really need to list them all?

Tom contrasts the collective failure of the industry to do anything about companies that go bust and break their pension promise, with the success of the Pension Protection Fund (PPF) set up by the government. Which within only 3 years of its existence is already protecting 41 schemes and over 12000 pensioners, paying out £1.4 per month? A further 225 schemes and 118,000 members are being assessed for help.

The hypocrisy gets even worse. Many of those who failed to do anything about this problem before the government stepped in, then incredibly began to complain about the failure to protect those who schemes failed before the PPF was set up. Tom points out that the government once again responded by introducing the financial assistance scheme. A bit late admittedly and much chivvied on the way, but better late than never.

Tom concludes that "If I take my red rose-tinted specs off I can see that Labour's record on pensions is not without blemishes. However on the specific issue of protecting pensions where employers have become insolvent it has a very good story to tell.

Tom, put your specs back on mate, they are not “rose-tinted” in the slightest. This government with pensions at least, is doing what it says on the side of the tin. A true left of centre progressive government that is prepared to actively intervene into the market to protect ordinary people. Not only vulnerable pensioners whose schemes have gone bust but to also vigorously regulate schemes to ensure that they remain solvent in the future.

A government that recognises that most personal pension plans only benefit the financial industry and the rich, have intervened again to provide State run quasi-compulsory, Personal Pension Accounts.

Most importantly, the government has also intervened via pension credit and fuel payments etc to (dare I say "redistribute"?) pour money into the pockets of the poorest British pensioners.

They have done this without scaring the horses. In private at least, I am sure that the more intelligent City folk realise that there are limits to what “free for all” capitalism can achieve and that there is a positive role for the state. However many simply do not have the intellectual honesty to admit it.