The Case for the Living Wage - Why a Living Wage Pays Dividends

Thursday evening I went to a well attended ShareAction event to mark "Living Wage" week and the launch of their latest "Investor Briefing" on the business case for a Living Wage.

Rhys Moore, the director of the Living Wage Foundation, spoke first about the doubling of employers who now pay a living wage in the last 12 months. It is now £9.15 per hour in London and £7.85 in the rest of the country. The national minimum wage is only £6.50 per hour. The Living Wage is about 70% of the medium national income while the international definition for poverty is 60%. Last year there was only 5 FT100 companies who paid a living wage, now there is 19.

Rhys thinks that a living wage is becoming a norm for responsible employers. Research shows that 25% of workers who earn less than a living wage, do not work in a "low pay" sector. The foundation are about to launch a living wage "consumer movement" to encourage people to "buy" only at living wage employers.

Next speaker was Phillipa Birtwell from Barclays Bank, who is its "Head of Reputational Risk" and told us about their ground breaking agreement in 2004 with the community group TELCO, over cleaners being paid a living wage at their Canary Wharf offices. Even though only 200 workers were involved, the story went  "viral". The benefits of applying a living wage is a fantastic human interest story.

Lisa Nathan from ShareAction spoke about the investor benefits from a living wage such as staff retention and reduction in turnover, reduced absenteeism and improved morale leading to increased productivity.

As well as being a corporate citizenship issue there is also a macro economic growth argument since if those who are paid the least, get a pay rise, they will spend it locally and boost demand.

Finally, there was a panel (see my pretty rubbish photograph above) with Cllr Richard Greening, Chair of Islington Council Pension Fund; Janice Turner, Vice Chair of the Association of Member Nominated Trustees (AMNT); Sarah Smart, Chair of the Pension Trust, James Corah from CCLA and chair Catherine Howarth.

Richard explained how 98% of all its employees are on a living wage, the only major area that they are not is a Private Finance Initiative (PFI) providing residential care. As a member of LAPFF they are also trying to control executive pay. He believes that the living wage campaign is now at a tipping point and becoming main stream.

Janice from the AMNT talked about an exciting new initiative which could have an significant impact on the living wage. At the moment the vast majority of votes at company annual general meetings are automatically voted in favour of management. Fund managers who do this are not held to account. The AMNT in partnership with others, is trying to draw up "Red Lines" voting guidelines. Pension funds of all sizes could agree to adopt a common set of voting instructions on Governance issues. So it could (this is early days) mean that fund managers are instructed to vote against any company that does not have all its staff on a living wage and and no future plans to do so.

Sarah explained that the Pension Trust was a £6 billion pension fund that caters for the "not for profit" sector. While its primary purpose is of course to meet its pension obligations, she doesn't think that companies paying a living wage is a huge investment problem. Pension funds are for the long term and believe in responsible investment. The Pension Trust recently became a Living Wage employer. The contract cleaners in their head office in Leeds had a pay rise of £1 per hour which has made a big difference to their lives.

Last speaker was James from ethical fund managers CCLA who were hosting this event. He quoted sections from the famous classical economic textbook "The Wealth of Nations" which appear to support the arguments for a living wage. He pointed out therefore that both the author Adam Smith and the Bank of England argue for a living wage.

In the Q&A I made a comment that as a pension trustee we believe that we will get better returns in the long run if we invest in well governed and responsible companies.  For example, those who treat their staff well, who do not destroy the environment, bribe public officials etc.  As investors we must be concerned with the substainablity of companies whose entire business model is dependent on paying its staff poverty wages and being reliant on state benefits to exist. 

Gregg McClymont MP Shadow Pension Minister: TUC Pension Trustee Network Conference 2013

 The last session of the TUC Pension Trustee network was chaired by Kay Carberry, the Assistant General Secretary of the TUC. First speaker on "Where next for UK Pensions?" was Gregg McClymont MP and Labour Shadow Pension minister.

Gregg thought that a key problem with auto-enrolment was that the employer in the main will select the workplace pension for employees. Therefore we need to make sure that there is competition and value for money. It is an "odd" market which is not transparent.

The Office Fair Trading (OFT) recently sampled the pension market and found insufficient competition. Transaction costs are not fully disclosed. If you don't know what a product will cost how can you buy it? There are incentives for fund managers to churn. In pensions size and scale matters.

In Australia where there are already only large funds the regulator has been given powers to force the merger of schemes if it makes sense. Also each year trustees are obliged to formally consider whether or not it is in the interests of beneficiaries to merge. There needs to be independent trustee governance for funds.

This doesn't mean 200k small pension trustee boards. The 4 biggest providers make up 16% of schemes. OFT did identify some weakness in Trustee governance. It is not a panacea but the best option. You need tension to deliver share owner value and we should extend the fiduciary duty up the chain to everyone who handles trustees money.

Next was Sarah Smart from "Smart Cats Consulting" and currently the Chair of the Pension Trust and on the Lothian Pension fund (LGPS). Sarah predicted that in the next 15 years NEST will have 8-10 million members. You need to have scale in pensions. Big is not necessary better but with big you can buy better governance. 

With big you can also share mortality risk with other members. Invest in growth assets rather than in annuities where you have to invest in gilts. For any new kind of Defined Ambition or Collective DC pension scheme employers have got to be reassured that they will not be liable with a scheme that is suddenly deemed to be DB?

She thinks that modern day politics means it is too short term for pensions. Instead we should have an independent pensions commission that decides things.

 Last speaker was independent trustee Fiona Draper. She stressed the importance of good administration in a pension scheme. Even if you have a global firm in charge there is no guarantee in her experience that they can work things out right. The role of professional trustees is important but they should not replace member nominated trustees.

She mused why the Australians can have proper compulsion in pensions but we can't? Why?

Finally, she teaches on a UK international course on pensions designed for the developing world. When this course started no doubt the UK Defined Benefit Pension scheme and state pension was held up to be the best that the rest of world should aspire towards. Nowadays she finds that often her students are unimpressed with the UK model and say that their own countries pension provision is better.

After the close of conference there was the famous TUC Pension network reception which this year I had to leave early to rush off to my trade union branch meeting.

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.)

Where next for Pensions Policy? TUC conference 28 Nov 2013

This should be a very good conference for all member nominated pension trustees and representatives. Make sure you ask your scheme to pay for the £50 cost. Should be lively with Con Keating speaking.

"With automatic enrolment finally underway, and plans in place for a single-tier state pension designed to provide a solid platform for private pensions saving, what will be the next phase of pensions reform in the UK? The government’s ‘defined ambition’ agenda outlines one possible vision for pensions policy, including options for introducing risk-sharing into defined contribution provision. But what does the future hold for defined benefit pensions? Is the DB funding model sustainable? Is the role of pension funds as institutional investors more important than ever?

This conference will explore these issues and help trustees navigate the regulatory, investment and stewardship issues that they face.

As you have attended the TUC Member Trustee conference in the past you know that this event is also a valuable networking opportunity to meet fellow trustees, trade unionists and pensions and investment experts to share information and experience.

Speakers include:

·       Steve Webb MP Minister of State for Pensions

·       Gregg McClymont MP Shadow Pensions Minister

·       Frances O'Grady TUC General Secretary

·       Con Keating Brighton Rock Group

·       Sarah Smart SmartCats Consulting

·       Andrew Vaughan Association of Consulting Actuaries

Workshops:

Defined Ambition – white knight or red herring?
De-risking – questions for trustees
Stewardship – taking action
Defined contribution – the governance gap – morning only
Local Government Pension Scheme – investment governance afternoon only

Date: Tuesday 26 November 2013          Venue: Congress House, London WC1B 3LS

To register for the conference go to:  www.tucmembertrustee.eventbrite.com