Gregg McClymont MP: Rethinking Pensions Conference 2014

Picture of Labour Shadow Minister for Pensions Gregg McClymont MP, speaking at last months "Rethinking Pensions" conference. 

This took place only a day after the Budget, when the Government announced its plan to allow personal pension policy holders to "cash in" their accounts when they retire rather than buy an annuity. 

Gregg apologised to us that he would have to leave early since he had to go to the House of Commons to listen to Coalition Pension Minister, Steve Webb MP give further details of the proposed changes. 

This is the sort of situation when politicians earn their money. A massive change in pension policy (and largely unexpected by all including the media) was less than 24 hours old yet the "Loyal Opposition" had to come out very quickly with a considered response. 

Gregg suggested that he could be using this conference as a test bed for the debate in Parliament later that day. He wants more detail about the Budget proposals but thought that the the new approach of yesterday, seemed to be a move away from the Turner Commission consensus building on Auto-enrolment? It also seems at odds with the apparent government support for Collective Defined Contribution (CDC) schemes? How can CDC work if people take their money out in cash at age 55? How can you share the risk? Who and how will this "advice" to savers be provided? Are pensions becoming an Individual Savings Accounts (ISA)? 

As well as being a professional politician (and of course in my view on the side of the forces of light and reason), Gregg is also a former Oxford don - so was able to think on his feet and give a good account of himself. 

Check out this article in Professional Pensions about what I think is the debate between Greg and Steve Webb later that day in Parliament.

My own initial views on the Budget proposals are here. 

Implications of Climate Change for Investment Returns and for Beneficiaries: AMNT Open Day

This is the first in series of posts on last weeks AMNT open meeting and AGM.

I was really pleased to see that there was a quite a few UNISON LGPS member nominated reps present.

The morning was a training session on the implications of Climate Change on Investment returns and for our Beneficiaries. Bearing in mind the very unusal weather we have been having this winter, this is a very topical subject.

Our meeting was opened by our Joint Chair Barry Parr who introduced Catherine Howarth. (see picture) who is a former pension trustee and the CEO of ShareAction (use to be called "Fair Pensions").

Catherine believes that Trust schemes have clear duties to take Climate Change seriously but with Contract schemes it is less clear legally but still a compelling reason to act.

She spoke about the Greenlight report launched recently with Pension Minister Steve Webb MP. There is a need to "nudge" pension schemes into managing the growing risk of climate change. There are a number of good schemes that are addressing this but many others who clearly "don't get it".

One sign of a good scheme is how well it communicates with its members.  Schemes needs to organise relevant training, look at governance policy development and carry out risk assessments. Need to look at low carbon investment opportunities and take into account that Auto-enrolment will bring in many young people into pension schemes, who will bear all the investment risk  of climate change in the coming decades.

Next was a speaker from PRI then climate change expert Meg Brown.

"Where next for Pension Policy?" TUC GS Frances O'Grady & Minister Steve Webb

TUC National Officer (and NEST trustee) Nigel Stanley opened the meeting.

The new TUC General Secretary, Frances O'Grady spoke first. She told us that this generation will be the first to be poorer than their parents. Things are very tough and while there is some genuine good news on auto enrolment (AE) and the state pension. We need to change the failed "market approach" economy of the last 3 decades.

While the TUC supports the general direction of travel, the starting point should be the overwhelming case for an increase in higher AE pension contributions.  We need a cap on Defined Contributions (DC) charges of 0.7% pa,  trust based governance and we must tackle systemic pension inequality. Why are top company directors paid 23% of income into their DC pensions while their workers only get 6.6%? This is profoundly wrong. Why are so many low paid workers excluded from AE?

We need employee representation on company remuneration committees to bring about some common sense on these boards.

Finally, why do higher rate tax payers take such a disproportionate amount of relief compared to basic taxpayers. Is this fair? 

Next was key note speaker, Pension Minister, Steve Webb MP.

Steve welcomed the broad support of the TUC on many of his measures. He is very proud that 2 million workers have been auto enrolled into their pensions schemes with scarcely any controversy.

He is concerned that many low paid workers are excluded but he doesn't think it is worth them paying 10p per week into a pension. It's not that they "don't give a damn" about the low paid and women.

Steve attacked the media for their coverage of his Defined Ambition (DA) and Collective Defined Contributions (CDC) proposals. The Telegraph accused him of "stealing" the indexation of pensions. He could have done nothing about Defined Benefit pensions and just watch them die. How can conditionality of benefits be worse than having no indexation at all? At the moment with DC all the risk is on the employee. What is wrong with risk sharing?

The DC collective model is illegal in British Law. Why can't we look at the Danish model where each year some of your pension is guaranteed? While guarantees have costs they are attractive to some.

He is consulting on charges and realises that he has to protect the majority who have been auto-enrolled that have never made an active choice on their funds.

He pointed out that despite the huge rise in life expectancy, the male  state retirement age is the same as a century ago. This is just unsustainable.

My question to Steve was what advise should we be giving low paid workers who when they retire depend on private renting. Many UNISON members are low paid and more of them rent in the private sector than from social landlords. I met recently a pensioner who is totally dependent on pension credit who has to pay £150 per week for a bedsit above a Chicken shop in West Ham. This man had been on low wages all his life but if he was in a pension scheme he would have had to save at least £100,000 lump sum just to get an annuity to pay off his rent.

What this means is that under AE the low paid who have to privately rent may be paying into a scheme that they will never benefit from? This is a future mis-selling scandal. What we need to do is of course increase real pay and reduce rents but... in the meanwhile?

Steve accepted that this is a problem and the decline in owner occupation has increased pensioner poverty but thinks that the housing benefit taper will still make it better for low paid workers to pay into AE, since the employer matches contributions pound for pound.

(after this we had coffee and then workshops. I will post next on the "Stewardship - taking action" workshop)

AMNT Open meeting 26 September 2013

Photo college is from the recent open meeting of the Association of Member Nominated Trustees.

The first agenda item was a presentation on "DB Schemes: Solvent Employer, wind-up or buyout" with AMNT Executive member Robin Bell and Louise Inward from our hosts at the Pension Insurance Corporation. Which used the Pension Regulator "On line" trustee toolkit to work out the problems and pitfalls facing a DB scheme in trouble.

Next was Joint Chair, Janice Turner who briefed everyone about current AMNT activities. Our membership has continued to grow. We have made significant contributions to government and regulatory policy on pensions and trusteeship. We have held successful and well attended open meetings and make our presence known by speaking in conferences and writing articles for the pension press.

We have been successful in our fund raising and have now employed an administrator, Kate Bendy, on a part time basis to support the AMNT objectives and our volunteer executive committee.

Pension Minister Steve Webb MP, was our keynote speaker and took part in a Q&A at our Summer Conference. Ewan McGaughey, a researcher from the London School of Economics, at the summer conference described the AMNT as “unique” and “the most important development in Pension Governance in 50 years”

We launched our AMNT DC and Auto-enrolment video kindly developed with Barings Asset Manager.

The picture of our other Vice Chair of the AMNT, “Red” Barry Parr, was on the front cover of July 2013 “Pensions Insight” magazine. Janice also mentioned my award as “Most influential Trustee” at the Mallowstreet Awards September 2013.

Next I spoke to the meeting about the latest updated edition of our hard hitting AMNT "Defend DB schemes" guide which all trustees whose sponsor wants to close their schemes either to new members or future accrual should consider. We also offer our members individual advice and support if they are going thorough this process. Modern defined benefit pension schemes are as affordable and sustainable as they have ever been. This guide is for members only.

Afterwards Catherine Howarth from ShareAction and Luke Hildyard from the High Pay Centre (see main picture) spoke about "Responsible investing: what corporate factors influence investment returns? Is high executive pay an issue for trustees?" Many asset owners believe they are being ripped by their senior executives. Catherine argues that Pension funds should publish their fund managers voting decisions so that they can be held to account. They should also develop their own voting policy on Executive pay and make sure that fund managers follow it.

Luke beleives that high pay ratios demoralise employee base, they create more conflict, more costs, less productivity. Massive pay attracts the wrong people, it creates false sense of invincibility and
lavish pay policies lead to poor performance, poor decisions and poor value for shareholders.

After lunch we had AMNT member Martin Taylor (bottom right) and a call to action on "What's to be done about fees and charges?". Martin would like trustees to work collaboratively together to drive down fees and charges.

David Barker from the Mercer DC and Saving team who argued that while there was still some awful bad value DC pensions schemes in the UK that the industry had improved dramatically in recent years. He also pointed out the the big Australian DC schemes treated non active members badly and that the big Dutch pension schemes that everyone raved about were currently in the process of reducing pensions of those currently retired. Which could not happen in the UK.

I then had to leave before the end of the day but I understand that the presentation by Terri-Ann Humphreys from the Pension Management Institute (PMI) went really well. The PMI set exams and standards for much of the pension world and it is everyone's benefit that the AMNT and the PMI work closely together.I also missed "Ensuring good governance of DC schemes (and DB too!)" and "How do you keep control of outsourced services" by Jamie Dobbin from PIC.

Our next AMNT open meeting will be at the House of Commons with Shadow Minister of Pensions Gregg McClymont MP on Wednesday 27 November 2013. Details to follow.

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

AMNT Summer Newsletter 2013: The Minister, the Researcher, the Polemicist & Red Barry

 Dear Member’s and Friends

The AMNT year so Far

This is our latest email newsletter. 2013 has been an exciting year so far for the AMNT. Our membership has continued to grow. We have made significant contributions to government and regulatory policy on pensions and trusteeship. We have held successful and well attended open meetings and make our presence known by speaking in conferences and writing articles for the pension press.

We have been successful in our fund raising and have now employed an administrator, Kate Bendy, on a part time basis to support the AMNT objectives and our volunteer executive committee.

Pension Minister Steve Webb speaks at AMNT Summer Conference

Picture of our Joint Chair, Janice Turner, with Pension Minister Steve Webb MP, who was the keynote speaker and took part in a Q&A at our Summer Conference, “Where Now The Pension Promise?” on June 26th hosted by Towers Watson.

As well as the minister there was presentation on different pension schemes by members of the AMNT (USS, LGPS & HSBC).

Ewan McGaughey, a researcher from the London School of Economics, described the AMNT as “unique” and “the most important development in Pension Governance in 50 years”! While the ever so quiet and retiring Michael Johnson, research fellow at the Centre for Policy Studies (CPS), gave a well received “Trustees: take no prisoners” speech on “Charging in Pensions”.

All the speeches are now on the AMNT website here

There was also a showing of the new AMNT DC and Auto-enrolment video kindly developed with Barings Asset Manager.

The Anonymous Trustee Question?

Each newsletter we are planning to allow a MNT to post a question on a current issue – if you have an answer for this question then do so on the AMNT LinkedIn site or email mail@amnt.org

“The Final Salary scheme of which I am a Member Trustee has gathered up people from various prior schemes and has endeavoured to match the pension terms that each member had before. So, we have several different ages from which the member may retire without actuarial reduction, many well before their 65th birthday. Trustee consent is required for these early retirements.

This is inevitably quite a large cost to the scheme. We have recently had an actuarial valuation and the sponsoring employer wants the trustees to agree never to consent to these requests for early retirement on these terms, so that this cost may be omitted from the valuation. The trustees have never refused a request for early retirement in the past and indeed have formerly been directed by the sponsoring employer not to do so”.

Has this happened to other pension schemes? What did you do?

Encourage your fellow Member Nominated Trustees (or representatives) to Join the AMNT

Even in this social media world of Facebook, twitter and blogs, by far the best way to recruit someone is still by word of mouth, one to one. So if your fellow MNTs in your scheme are not yet members of the AMNT, please point out the benefits and ask them to join! Check out our revamped website here

Driving down investment charges

An AMNT member wants to do something about investment charges and to see whether we can't drive down charges - or at least reach acceptable standards - for our investments. The concept is that perhaps we may be able to guide members as to what a reasonable charge rate might be for certain asset class investments and not only that but perhaps have more confidence in using more challenging forms of contract - risk reward and so forth.

This is a big subject and it would be very helpful if we could identify a set of AMNT members willing to share some knowledge regarding their experiences on costs and contracts. If you are interested and can help please email mail@amnt.org

£179m of Equitable Life payments owed

The Equitable Life Payment Scheme is asking company pension fund trustees and administrators for their help to make payments of £179 million to their members. Members of the pension scheme that you act for may lose out if you do not take action. 547,000 scheme members are due a payment of 22.4% of their relative financial loss suffered as a result of UK Government maladministration in the regulation of Equitable Life.

As Equitable Life did not hold the addresses for nearly 500,000 company pension scheme members, the Scheme is asking trustees, administrators or authorised representatives of pension schemes that invested in Equitable Life between 1992 and 2000 to share their members’ addresses.

The Payment Scheme has made good progress with most company pension schemes and has received data sharing agreements covering over 400,000 of their members who are due payments of £115 million. This represents 73% of the 547,000 members who are due a payment.

The Payment Scheme is now urging the remaining company pension schemes to return data sharing agreements as soon as possible. Once this is completed, they can provide members’ addresses so the Payment Scheme can write directly to their members to start the payment process.

A list of the company pension schemes that the Payment Scheme has been unable to trace is on the Scheme’s website. Individual members of these schemes can call the Payment Scheme’s policy checker service on 0300 0200 150 to check whether their policies are eligible and find out the next steps to take.

Pension Trustees Circle Seminar

This will take place on Sunday-Monday 29-30 September at The Majestic Hotel, Harrogate. There are currently 2 Pension Trustees Circle (PTC) events in the South East – this will be the first meeting in Northern England. The PTC is for chairs of pension schemes or experienced trustees in pension funds with a minimum of £100m and it is free to attend. In addition, to celebrate the inaugural PTC North meeting and encourage attendance, the organisers are providing free accommodation for approved trustees. if you would like to apply for a place please contact Liz Doughty – liz@spsconferences.com

PMI Qualification in Trusteeship

The AMNT have been researching the possibility of organising training and the exam for the PMI certificate in trusteeship.

We would like to hear from any of our members that would be interested in the training and sitting the exam. If we have enough interest then we will explore setting up the training and the exam. To register your interest please email mail@amnt.org

Dates for the diary – Thursday 26^th September 2013!

Next AMNT open meeting scheduled to be held at Pensions Corporation, London on Thursday September 26th. Further details to follow. We are also planning an event to take place in the House of Commons in November.

Defined Benefit Defence Pack

The latest version of the pack is being updated and we hope to be able to announce a re-launch date soon. In the meanwhile if any AMNT members need advice or support on proposed closures please email DB Working Group Chair, John Gray, (in confidence) at mail@amnt.org

Finally....

Picture (bottom right) of our other Vice Chair of the AMNT, “Red” Barry Parr, on front cover of July 2013 “Pensions Insight” magazine (Shome mishtake, shurely? Ed)

Editor: AMNT Executive member John Gray

Pension Minister Steve Webb MP to address AMNT 26 June 2013

Association of Member Nominated Trustees

Pensions Minister Steve Webb MP will be the keynote speaker at our first AMNT Summer Conference which will take place on June 26th 2013, at Towers Watson, 21, Tothill Street, London SW1H 9LL. Some details are still to be finalised, but currently, the day looks like this:

We will begin with registration from 0930, and the main conference starts at 1000.
Steve Webb has agreed to start us off with a keynote speech.

Then Co-Chair Barry Parr will go through the results of our Member Survey.
Bill Trythall (Committee Member) will then talk on "The Universities Superannuation Scheme".

After coffee, Ewan McGaughey will talk on "MNTs in Corporate Governance", then another Member will talk on "A Smaller DC Scheme".

Lunch and networking will be followed by our hosts Towers Watson talking on Current Pension Issues, then John Gray (Committee Member) will present on "London Borough/Local Government Schemes".

Following this, Michael Johnson will speak on "Charging in Pensions".

After a tea break, our Friends will leave us, and we will go into Round Table Debates on Current Pensions Issues with one of our Sponsors leading each table.

A final feedback session will be followed by a closing summary, which is due to finish at 1700.

After the meeting has closed, there will be the usual networking opportunity with drinks provided by our hosts Towers Watson

There are limited places available for this event, so please let us know as soon as possible if you are able to attend. Click on one of the below links and let us know by email, including whether you have any dietary requirements and if you plan to attend for the drinks reception.

Email mail@amnt.org if you wish to send the whole or part of the day at the meeting.

(if you are a member nominated Trustee or representative then join and apply to attend)

"Ambitious Enough? The future of workplace pensions"

On Tuesday morning there was a TUC seminar on workplace pensions Chaired by Assistant General Secretary, Kay Carberry. Keynote speaker was Minister for Pensions, Steve Webb MP.

In his speech he promoted his vision of "Defined Ambition" pensions.  He thinks that Defined Benefit (DB) schemes are finished outside the public sector but wants something better than Defined Contribution (DC). Problem with DB is cost to employer and volatility, while problem with DC is uncertainty and protection against inflation.  He wants something that is not as good as before (DB) but better than the minimum (DC).

He suggested that employers may pay an insurance company (as a company perk) to protect the value of a DC scheme so that on retirement you would get at least your contributions back. He also said that what employers want with pensions is a level playing field and they don't want to pay more than competitors.

My question to him was that are we just trying to reinvent the wheel? If workers need certainty and inflation protection then the answer can only be DB. A reformed DB, where you look for example at employer caps in contribution (I forgot to mention smoothing). In Japan nearly 100% of pension provision is still DB, while in South Korea which has amongst the worlds longest life expectancy they are still opening new DB schemes. If companies want a level playing field then introduce compulsion.

He replied that he did not know why DB was still so prevalent in Japan. He thought it may be related to inflation? He also said it would be inconceivable to get political consensus in the UK  to agree to DB pension compulsion in the UK.

Which I would agree with. It will be impossible to get consensus from right wing Tories. That is why the next Labour Government with a decent Parliamentary majority should just do it, because it is the right (or rather left)  thing to do.

You can check out my twitter comments on the rest of the seminar here 5 February 2013.  There were some really fascinating contributions from other panel members: Doug Taylor from "Which?"; Professor Orla Gough from Westminster Business School and Craig Berry from the TUC.

I had another chance at a question towards the end of the seminar, where I asked the panel that there is a lot of interest currently in "Predistribution" and the concept of a living wage, since the taxpayer should not be spending money subsiding bad employers who pay poverty wages. So should we in the pensions world be also talking about a "living pension" and not allowing bad employers who don't provide one to subsidised by taxpayers as well?

Not sure if I got a full response from Panel. Craig Betty was supportive but  DWP civil servant, Mike le Brun, who took Steve Webb's place on the panel said that individuals will have to take more responsibility for their own pensions. In DB they were passive but in DC they must be active.

Which would seem to contradict his Minister comments about the problem with DC being that individual workers cannot understand the uncertainty and the inflation risk.

If the best brains in the Treasury and the City of London cannot accurately predict return and risk then what chance does Joe Public have with their DC pensions?

UNISON Pension Guru Glyn Jenkins on "smoothing" and stop "destroying" schemes

This 5 minute video "head to head" by Professional Pensions sees UNISON Head of Pensions, Glyn Jenkins, debate the recently announced Government enquiry into "smoothing" with PWC partner Jeremy Way.

Most defined benefit schemes value the present and future cost of pensions by reference to the return of government loans called gilts. Due to current abnormal market conditions these gilt returns are at a 200 year low. This means that schemes appear to have huge and unstable deficits. The enquiry is looking into arguments that instead of valuing these liabilities according to gilts they should be valued in another more relevant way.

For example by reference to the actual historic and expected return of the assets that the schemes actually invest in, not a "make believe" world that they only invest in gilts. Most pensions schemes invest in other assets such as equities  (stock and shares) not just gilts and it is reasonable to expect a much better long term return from such assets than gilts.

If they did this then the size of so called current "deficits" in many DB schemes would be slashed.

Glyn believes it would make sense to consider all scheme assets not just gilts and that the current unrealistic and inflexible "herd" or "lemmings" approach is destroying schemes. Which is actually the view of the current Pensions Minster Steve Webb.

I'm not quite sure what the conclusion of the PWC "yes but no but" argument actually is, but check it out in the the video for yourself. I suppose 5 minutes is far too short for a definitive debate but it concentrates the mind.

Save Our Pensions (Do you want to be Old and Cold?)

This is one of my branch motions to the UNISON Community conference in March 2013. Which was amended at the last weekends Service Group Executive meeting at York (see last point).

"This conference notes:-

That the Social Housing Pension Fund and the Pension Trust have announced plans to stop many Community employers from offering a decent defined benefit scheme to our members.

They are also trying to massively increase pension contributions to such an extent that many employers are planning to close schemes to future service or pass on these contribution rises onto members. This will make them unaffordable and members will be forced to leave the schemes which will in turn then fail.

The reasons given for taking this action by SHPS and the Pension Trust are that they must protect the fund against rising “pension liabilities”. This is a completely nonsensical argument. It is well known that due to outdated and deficient rules called “Mark to Market” accounting, the “costs” of defined benefit pensions have risen in a totally artificial manner. Schemes usually have to price their costs according to the return on Government loans called gilts. Due to the abnormal economic conditions these gilts currently have negative returns and are at a 200 year all time low. This has meant that pension schemes appear to have high deficits when in fact this has nothing to do with their underlying strengths or weaknesses.

The government has committed to act on this issue but has just failed to do so. The Pension minister Steve Webb promised to do something about what he called this "nightmare" which is "killing" perfectly good pension schemes and that he would "not idly stand by" and let this happen.

Properly run and regulated defined benefit pension schemes are as affordable today as they have ever been. Most defined contributions schemes will not result in members getting adequate benefits when they retire. Our members will die in poverty and the taxpayers will have to subsidise bad employers for their poverty pensions.

Auto enrolling of pension is an organising opportunity for the union as well as a means to fight for better pension provision. .

This Conference calls upon the Service Group Executive:-

To lead a campaign to save our pension schemes from closure. To encourage our employers to stand up to the Pension Trust and SHPS and make them understand that they do not have to destroy peoples pension futures to safe guard the scheme. To also reopen existing closed schemes.

To lead a campaign to ensure that if employers do not stand up to the Pension Trust and SHPS then they should pay the extra contributions which the schemes are unreasonably asking for and not staff.

To lobby the Pension Trust and SHPS to modernise their schemes. For example why does the better off pay less (after higher rate tax) in pension contributions then basic rate taxpayers?

To lobby the Government to change “Mark to Market” accounting.

To examine the case for employers to be encouraged to seek alternative defined benefit provision in our sector and what role the Labour movement can play in this provision. In many other countries trade unions provide pensions.

To consider how to organise effectively around auto-enrolment in our sector and ensure that any defined contribution schemes match NAPF Quality standards plus".

SGE Amendment:

"New point 8

"To campaign for all Community employers and pension providers currently proposing to close their defined benefit schemes or raise contributions, to suspend changes following the announcement by the Chancellor George Osborne in the Autumn Statement of a government enquiry into new ways of valuing pension fund deficits. Some commentators believe this could lead to a reduction in deficits by up to 40%".

Barnardo's Pension Betrayal

Some things do make you simply despair. Today I learnt that the Charity Barnardo's has announced that it will be closing its defined benefit pension scheme for it's staff without consultation.

Of course it is now back tracking rapidly since UNISON has reminded it that it is legally obliged to consult with its staff before making such a decision.

But how on earth have we come to this place that a previously respected national charity is not only depriving its staff of a decent pension scheme but is planning for them to retire and die in miserable poverty?

Let us get certain things straight from the beginning. Firstly, Barnardo's do not have to close their career average defined pension scheme. It will not get rid of any pension fund deficit since that will remain and now become far more expensive to service. It will arguably make the existing deficit worse and without doubt, cost Barnardo's more money to close it rather than keep it open.

So why on earth are they wasting charitable and public money on closing their scheme?

Not only that but even the Government has accepted that the way pensions schemes traditionally calculate the cost of their pensions is completely nonsense due to outdated and ridiculous accounting measures. The Pensions Minister, Steve Webb, has promised to change this and there is currently an on going enquiry into this matter which some commentators believe could reduce the size of pension fund deficits by 40%?

What is also particularly sickening is that Barnardo's is proposing to offer its staff being kicked out of its existing pension scheme, the poverty pension plan currently offered to new staff members. It will only offer 4% or 6% matched employer pension contributions, which are wholly inadequate and will mean that many of their staff, particularly the low paid will retire and die in poverty.

Is this what they really want? What does the Charities trustees think of this?

If you check the accounts there are 8,366 Barnardo staff who earn less than 59,999 per year. The overwhelming majority of course are on much less than £59k. There are 35 staff who earn £60k - 159k per year, who no doubt earn so much, they will be able to properly fund their pension schemes.

The top earners are the ones who made the decision to close the traditional scheme.

This is all just wrong and totally unnecessary. Barnardo's should be engaged in genuine and meaningful negotiations with UNISON over these issues.

If they don't then, it will just further damage and even help destroy their reputation. 

"The Emperor has no clothes": but still killing retirement hopes and dreams

This cartoon is from Friday's "Inside Housing" Magazine about the £5 billion Pension Trust which is forcing out, for no good reason, many third sector employers from its defined benefit scheme, while pricing out others due to huge rises in contribution rates.

While I am pleased that Inside Housing has led this debate in our sector and had a news article, analysis and editorial on this subject, it has hasn't quite got it right about some pretty important issues.

1. Why is the Pension Trust writing to employers threatening to force their their workers out of a decent pension scheme on the basis of discredited "mark to market" accounting measures? Why are they increasing contribution rates on this basis to such levels as to force even more schemes to close.?

2. Why is the Pension Trust not talking to the Pension Regulator about extending its deficit repayment period to take into account the 200 year abnormal gilt yields, which are making schemes seem to be in trouble, when they are clearly not? Other social pension funds have done so successfully, why hasn't the Pension Trust?

3. The Pension Minister Steve Webb MP himself has recognised "mark to market" is a nightmare which is killing perfectly good pensions schemes and has promised to do something about it. Why force schemes to close when change is likely to happen soon?

4. Why isn't the Pension Trust thinking about asking the highly paid to pay more? They already pay less than the low paid due to high rate tax relief? Why aren't they encouraging or looking into salary sacrifice, contribution "caps and shares", changes in retirement ages, hybrid schemes or investment fund merger?

5. Was the Housing Charity "People Can" forced into administration by the Pension Trust, discredited pension accounting measures or Government cuts? What are the real reasons? Who is really to blame?

6. The Pension deficit is not "the result of poor returns on government bonds in which the scheme had invested heavily" (page 12).  The problem is not investment returns it is the way you calculate the cost of pension promises (liabilities) which are currently based on government bond yields.  This is absolutely crucial for people to understand. The deficit has increased in the last 3 years even though the scheme investments have increased in value.

7. What has changed? Have people suddenly started living longer in the last 3 years? No, the only thing that has changed is that gilt yields are at a 200 year low due to reasons completely unrelated to the real cost of a pension.

8. So "The Emperor has no clothes" the deficit is not real. So why close and force people out of decent pensions for no good reason?

9. It is a fact that closed schemes become more mature and are forced to have smaller and smaller levels of equities and more and more traditionally low return bonds and cash holding. While at the same time paying the same level of huge fees and commissions.

10. Closing schemes does not get rid of any deficits, in fact they can make things much worse.

TUC Pension Trustee Conference 2012: Making Pensions Work For People

Picture is of Pension minister, Steve Webb MP, address the opening of the 2012 TUC Trustee conference at Congress House.

Steve spoke about his recent discussion paper on "Reinvigorating Workplace Pensions" which I will post upon another time.

He thought that auto enrolment had been a success so far with far less "opt outs" than feared (Great news).

He wants reform to allow people who build up small "pension pots" with a number of different employers to have the "pots follow the member" and consolidate into big fat pots (Good idea).

The new state pension scheme must be above the means tested income support level or people will not have the confidence to save for their pensions in case it is all eaten up by reductions in benefit (yep).

He tried to explain what his big pension idea "defined ambition" will mean in practise. While he would prefer pensions to be guaranteed and salary related, what can be done if employers don't want to offer such schemes? (you can force them Steve thought I).

In Q&A my question was about his comments in Pensions press in June this year, that accounting standards in defined benefit schemes were "a complete nightmare" and "killer" for pension schemes. While he also promised to "not stand idly by" and do something. Yet today schemes such as the Pension Trust are still using these completely artificial standards, to justify kicking employers out of schemes and forcing the closure of decent pensions for no good reason. These so called pension "deficits" do not exist.

Steve answered by saying that he wouldn't quite agree that the deficits did not exist, he had not forgotten his words but he cannot say anymore at the moment except that he hasn't forgotten what he has said. He also said that he had met with a number of big charities recently to talk about their difficulties with the Pension Trust.

Well, wait and see I think. I am told that it is Vince Cable as Secretary of State for Work and Pensions who is responsible for addressing such accountancy standards ("Mark to Market" and "Smoothing").  I don't know and frankly don't care who does what as long as something is done. Perfectly good pension schemes are going to wall every week in this country, while those responsible appear to wring their hands as ordinary workers are being cheated out of a decent retirement!

You can check my twitter posts of the whole conference here  It was probably one of the best TUC ones I have attended. I will try and post more during the next few days. Its a busy time for pensions. 

Why is this government destroying Pensions, Charities and Jobs?

This morning I read about the Charity "People Can" being forced into administration and 300 jobs being put at risk.

I don't know all the reasons why this has happened but we are told it was due to its "pension liabilities". Whatever that actually means?

But I do know that the charity and its workforce protects victims of domestic violence, stops ex-offenders reoffending and gets the homeless into secure and safe accommodation.

The  Administrators, PriceWaterhouseCoppers (PWC), is not of course an evil organisation, however is not that well known for its concerns about battered women, ex-cons wanting to go straight or homeless kids desperate to get off winter streets.

It is known that "People Can" has a history of financial insecurity.  But I wonder what is the real reason for the "pension liabilities" (or deficits) in the first place that are supposed to have led to the potential sackings and loss of vital services? Was it due to inadequate financial planning or that its defined benefit pension scheme was in some way unsustainable?

No one has mentioned either about whether the pensions of the charity staff are truly safe or are they being subject to the tender mercies of the "Pension Protection Fund"? The PPF is a "good thing" but do not think for a moment if the PPF steps in that you have nothing to worry about your retirement. You do.  If you haven't already retired you may find your future pension significantly reduced.

My biggest gripe is that this closure and threat to peoples pensions in "People Can" and elsewhere could be based on complete and utter stuff and nonsense.

Due to outdated and deficient accountancy rules called "Mark to Market", perfectly good defined benefit pensions schemes are going to the wall. Sometimes bringing their organisations down with them. For no good reason. Perhaps we ought to shout out the emperor has no clothes – these so-called pension deficits are not real! They do not reflect the true future costs and liabilities facing pension schemes.

Schemes usually have to price these costs according to the return on Government loans called gilts. Due to our abnormal economic conditions these gilts currently have negative prices. This means scheme deficits have increased massively and have nothing to do their underlying strengths or weaknesses.  Quantitative Easing (QE) by the Bank of England is making things even worse. This has resulted in gilts yields being in even more La La land. They are at a 200 year financial low.

Everyone knows this but why is it allowed to happen and destroy perfectly good pension schemes and then make its members live and die in poverty? Even worse, relying on the tax payer to subsidise poverty employers who pay their pension pittances. Is this the sort of society that we really want?

The government has committed to act on this but has just  failed to do so! The Pension minister Steve Webb promised in June to do something about what he called this "nightmare" which is "killing" perfectly good pension schemes and that he would "not idly stand bye" and let this happen.

I'm not holding my breath Steve. Many more jobs, services and decent pensions schemes will not last, unless you, Clegg and Cameron get their fingers out and do something.

Some good news on housing workers pensions! But...

This is a rather rare title for a post on pensions! However, well done to Housing Association Plymouth Community Homes who have decided to keep their 60th Defined Benefit scheme with the Social Housing Pension Scheme (SHPS) open and absorb the extra costs imposed by the SHPS.

There are still some changes which UNISON members are unhappy about such as move from RPI to CPI and the charging of pension contributions while on maternity leave.  But PCH obviously care about their workforce and take their duties as a responsible employer seriously.

They do not want their employees to retire and die in poverty. Unlike some it would seem who not only want to close their Defined benefit (DB) scheme but replace it with a pittance of a Defined Contribution (DC) scheme. In a recent report by a leading Actuary, in a DC scheme you would need to invest 22.9% of your pay to get 53% of final salary pension (twice as much as a DB scheme!).

Yet some employers are proposing to pay only the new national legal minimum of 3%. This will mean as mentioned above that their staff will not only die in relative poverty in their old age but the taxpayer will also have to subsidise their pensions to keep them out of absolute poverty.

SHPS and its parent organisation, the Pension Trust, tries to justify increases in contributions by pointing to a supposed rise in "liabilities" (the future expected costs of giving members pensions) yet even the Pension Minster, Steve Webb MP, recognises that the way we calculate pension costs is practically meaningless and is destroying perfectly good pensions schemes.  He has committed to change.

Employers need to get a grip and challenge the assumptions being made and the contributions they or their employees are being expected to make. I am not at all convinced that this contribution rate increase requirement by the SHPS is at all necessary and I hope they seriously take this up with them.

I am dismayed that SHPS are not engaging with UNISON's proposals about practical alternatives to contribution rises. The Local Government Pension Scheme is very similar to many SHPF schemes but has been able to avoid increases in contributions for most of its members by working in a partnership with the trade unions and employers. This has brought about radical but thoughtful and intelligent change.

There was no consultation with the trade unions whatsoever by the SHPS before they decided what they wanted to do and no interest shown in any real partnership working.

One of the irony of ironies is that a major reason why some SHPS employers want to close their scheme to existing members is because they have closed it to new members joining. Quite rightly pensions contributions have to be increased if a fund is closed. SHPS have to charge more (I think 3%) since in any closed scheme the investment returns will be lower and the costs higher. This is just madness. Why condemn your staff to a miserable old age for nothing? Cut costs and re-open those schemes to new blood.

Closing your DB scheme does not make it any better, it does not get rid of any deficit (real or otherwise) it just makes it worse. Increase contributions on your staff by too much and they will just walk away from it, the scheme will then fail and the employer will be left to carry the can.

UNISON has recently published an excellent guide on the proposed changes to SHPS and later this week we are holding a national training event in London on it. 

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/

Bank of England investigates itself and finds its "Not Guilty" over QE

Well, that's okay then. Never mind perfectly sound pension schemes are closing left, right and centre. The Bank of England has looked into whether its ongoing policy of Quantitative Easing (QE) has any negative effects and has concluded the good outweighs the bad.

Apparently the fact that QE has benefited the rich (top 5%) the most isn't of concern to this Coalition cabinet of millionaires either.  I do wonder why?

The cut in gilts yields due to QE is helping to make many private sector DB pension schemes seem unaffordable and adding to the pressure for them to close. It increases the so called "deficits" which due to current abnormal 200 year market low conditions are already pretty meaningless. 

This has nothing to do with poor investment returns or increases in life expectancy. This is solely down to a discredited and outdated accountancy measure ("mark to market") which the Bank of England is aware of but does nothing about and while the Government has promised not to idly stand by and watch good pension schemes go to the wall, so far, it has done nothing either.    

"Housing bodies fight to protect staff pension pots"

Today the Social Housing Magazine "Inside Housing" led with a report that housing organisations are to challenge a threat to their workers' pensions.

The Pension Trust which administrates the Social Housing Pension Fund (and many other Community and voluntary sector pension funds) is being blamed for attempting to force employers to close decent defined benefit schemes and force them to open less secure defined contributions schemes. This is supposed to be about rising pension "deficits".

To be fair to the Pension's Trust I have had conversations with people closely connected with the Trust and they say that they are fully committed to keeping these schemes affordable and open.

This morning I posted these comments on the Inside Housing website.

"While it is good news that Housing organisation are going to fight to protect their pension schemes it is absolutely vital that everyone understands that these “deficits” are frankly meaningless.

The cost of pension schemes is measured by a discredited and outdated accounting system called “Mark to Market” which even the Pensions minister Steve Webb described as a “Nightmare” which is “killing” perfectly good schemes. He has promised “not to stand “idly by” and to do something.

All employers and defined benefit pension schemes must not panic or over react. They should be working jointly with the trade unions to resolve this temporary problem. Remember closing the scheme will not get rid of the deficit. It can make it even worse.

Modern defined benefit pension schemes are as sustainable and affordable now as they have ever been. 

John Gray Branch Secretary UNISON Greater London Housing Association Branch"

Minister wakes up to Pension "Nightmare...Killers"

I'm still catching up after last weeks UNISON Conference bubble only to read that Lib Dem Coalition Pension minister, Steve Webb, has finally woken to the completely nonsensical "mark to market" accounting standards which are (quote) "a complete nightmare" and "killer" for pension schemes.

Private sector defined benefit pension scheme value their liabilities  (how much they owe current and future pensioners) by using the yield of 15 year government gilts (bonds/loans). These yields are at a historic 200 year low due to the Euro crisis "flight to quality" and the governments quantitative easing policy.

"Mark to market" accounting is now completely ridiculous Some pension commentator's are scaremongering since they can make more money out of closing pension schemes rather than keeping them open and because of this some employers are panicking.

I hope indeed that Steve will "not stand idly by" and do something. I am not sure however that his coalition partner's have enough about them to stand up to huge vested interests who appear to be quite happy for decent pension schemes to continue to go to the wall.

Hat tip thingy TGLD