Can we have a national DB pension scheme?

My latest article for Professional Pensions. "John Gray says we need to do all we can to preserve defined benefit pension provision in the UK

Those of us who live in the real pension world know it is true but many are in denial. For entirely understandable reasons, the pension industry just don't want to admit it. So come on folks and get out of the pension closet and collectively shout out loud that defined contribution (DC) pension schemes are usually pretty rubbish. 

The government green paper on the future of the defined benefit (DB) schemes may indeed be an attempt to justify the slashing and burning of pension promises but it is also an opportunity to make the opposite case and call for a rebirth of DB.

Recently I was at the TUC annual pension trustee conference and there was a fascinating panel debate on the future of DB. Of course, the 'usual suspects' (progressive actuaries and trade union pension officers) pointed out that there is still a huge (and growing in some sectors) DB pension provision in the UK and that despite some genuine problems these schemes are still affordable, if you ignore the 'Mad Hatter' valuations and assumptions by those who confuse being prudent with being totally risk free.

I raised a question to the panel about why DB schemes are being written off when there is a contribution cap for future accrual in my DB scheme of 19.5% of payroll for employers (13%) and members (6.5%). Meanwhile our new employees, who do not now have such access, need to put away the equivalent of up to 50% of their pay (dream on) to receive similar benefits when they retire in a DC scheme.

Is there an alternative to DB?

Isn't it obvious that DB is better for workers than DC? The half way intermediate schemes such as collective DC or hybrid DB seem to be getting nowhere. There is simply no alternative to DB.

The key note speaker, economist and writer, John Kay gave a brilliant speech at the end of the TUC conference in which he admitted that he thought we had failed the modern generation on pensions. He told us about how recently he had spoken on pensions at a seminar and afterwards a young woman in her 30s had asked his advice about what personal pension she should start? The question had shaken and upset him to think that frankly, his advice should have been it was actually hopeless for her to start anything at her age.

Let's face facts. Many people who will only have access to the state pension and some DC pension savings will not be able to afford to retire. They will have to work until they drop. If they do retire (or get sacked under workplace capability procedures) they face at worse poverty for the rest of their lives and at best certainly nothing like what they would have expected as a standard of living after a lifetime of hard work. Many more will still be dependent on means tested benefits.

We have a national NHS but why don't we have a National DB pension? If the government gave it a Crown promise why can't we open up the Local Government Pension Scheme to everyone including the self-employed? Merge it with the Pension Protection Fund and private DB schemes for efficiencies and economies of scale?

The new government consultation on DB is timely and we should all respond and demand that the government acts to fulfil its duty to its citizens that they will not die in poverty in their old age. The best mechanism to do this is by modern DB schemes open to all, regulated and guaranteed by the state.

John Gray is admitted body union representative at the London Borough of Tower Hamlets Pension Board. He is writing in a personal capacity

Local Authority Pension Fund Forum Conference 2012 (and 2022)

The Local Authority Pension Fund Forum (or LAPFF) has 55 different Local Authority members who hold £115 billion of assets. It specialises in Corporate Governance and Responsible investment issues.

This year's conference theme was "Market Reform: What are the Shareholders responsibilities?"

I was not able to attend the first day of conference but this morning's topics including a panel debate on "Investing in growth - how can local authority pension contribute to the UK economic recovery"; "The Olympus crisis: What can investors learn" by Michael Woodford MBE, ex CEO Olympus (which was very, very good) and closing speech by John Kay, on his review followed by another panel.

I'll try and post on these later (but I have quite a backlog of pension posts to catch up on). You can see my live twitter comments here (29 November).

There is huge change about to hit the £160 billion Local Government Pension Scheme and by implication LAPFF. We have the triennial revaluation of all LGPS funds next year and no doubt the usual suspects will jump up and down about so-called "deficits", even though much of that is down to completely idiotic accounting measures. 

The new look LGPS 2014 Scheme will radically change not only the benefits and governance structures but also an enhanced "Fair Deal" for privatised staff and for the first time, a cap on employer contributions.

Not only this but there is also auto enrolment, pressure to merge the 101 different funds, a decline in active members, need to slash costs/improve performance and the various demands (or need?) to invest more (far, far more) in UK infrastructure.

Some people think that the LGPS is the British Sovereign Wealth Fund; others think it is being treated as a cash cow and is being completely and utterly ripped off; quite a few want membership to be opened up to all British workers while some vested interests (of various political persuasions) just want to destroy it.

So there is likely to be a period of profound change ahead. Remember 4 million Brits are members of the LGPS.

I wonder what a LAPFF conference will look like in 2022?

TUC Pension Member Trustee Conference 2012

Today I finally booked a place here for this year's TUC trustee conference.

"Date Tue, 27 Nov 2012

Location Congress House, London WC1B 3LS

Cost - Unions: £50
- Educational, public or voluntary sector: £75
- Commercial and others: £250

Description
The TUC invites pension trustees to the annual conference on Tuesday 27th November. The Conference will feature speakers from the pensions and wider financial and political world and will engage delegates with a range of technical and informative workshops.

Keynote speakers include:
- Pensions Minister Steve Webb MP
- Professor John Kay, author of the Kay Review of UK Equity Markets and long term decision making.
Contact for more information
Enquiries: Jennifer Mann 0207 467 1222, Email: trusteenetwork@tuc.org.uk
To register for this event please visit:

http://tucmembertrustee.eventbrite.co.uk/

The Enlightened Shareholder

Last week I went to the launch at the House of Commons of the report "The Enlightened Shareholder: Clarifying investors'

fiduciary duties" by Fair Pensions.

The speakers included "Professor John Kay, who is currently leading a review which looks into long-termism in the UK equities market; Saker Nusseibah, Acting CEO of Hermes; Roger Urwin, Global Head of Investment Content at Towers Watson and Baroness Jeannie Drake".  Fair Pensions CEO, Catherine Howarth, chaired the meeting and its author, Christine Berry presented the report.

The big issue is whether or not the "fiduciary duty" of shareholder representatives (and trustees) ought to be legally redefined to deal with "crony capitalism and excessive executive pay". Pension trustees (and member nominated representatives) still come across advisers who tell them (completely wrongly I think) that  their only role is to "maximise returns" of the scheme regardless of the impact it has on stakeholders, the wider economy and even the long term interests of the scheme. Which is clearly stupid and frankly bonkers. But it happens and it needs to be dealt with.

I think this problem is widely recognised but there is the usual dispute about the solution. Should this be by statutory regulation or some sort of a voluntary code? As pointed out in the debate we have tried the voluntary approach for a long, long time. It has clearly failed due to agent self interests and conflicts. We need to regulate.