The Madness of "Mark to Market" Accounting: Destroying our Pension Futures

Last week I heard that one of our employers wants to meet my trade union branch to "discuss" closing their defined benefit pension scheme. At the same time an union pension trustee colleague sent me this link to an article by the "Daily Telegraph" on defined benefit  schemes struggling to stay open.

The article itself was as usual for the "Torygraph" ill informed and biased, shaped by the self interest of it's owners and its advertisers' but what I found interesting was in a on-line comment by "mchenry" about final salary schemes.

I support mchenry's argument that a key reason why private companies have been closing their  pension schemes and therefore creating "penury for millions of ordinary workers in the future" is not to do so much with people living longer or the (mistaken) past taxation of pension funds but instead it is "a frankly insane requirement to value long term liabilities spread over decades via volatile short term measurements". This is the legal accounting requirement of pension schemes called "Mark to Market" (or even more laughable - "Fair value") Accounting.

What this means is that pension fund liabilities (the promises made so far by the scheme to pay pensions now and in the future) which may be spread over the next 60 years are costed using completely daft and inappropriate means. UK Government bonds which are currently on a 200 year all time historic low have to be used to price the future cost of pensions to the scheme even if this notional cost is decades and decades from now.

Would you take out a £150k mortgage to buy a house if depending on events entirely out of your control this mortgage liability could just jump up in a matter of months to £300k? Also if your credit rating was based on your ability to pay all your loans and mortgages off immediately - would you be declared bankrupt?

Which is all completely and utterly bonkers.

"Mark to market" accounting makes it appear that perfectly good pension schemes are in massive deficits. These "deficits" have also been completely unpredictable and volatile in recent years and months. Since the so called "deficits" must appear on the company accounts, no wonder some finance directors  panic.

Not only this but because of these entirely artificial measurements the investment policy of pensions schemes is being driven entirely off course by this "funny money" calculation.   Schemes may be tempted to take all sort of riskier investment options or even buy totally unnecessary insurance policies to reduce these artificial "deficits".

Look, there are huge problems and challenges that defined benefit schemes need to face. But we need to deal with the real problems of uncertain market returns and longevity not stupid accounting rules  no matter how well meaning. Unless we sort this out millions and millions of Brits will be spending the latter part of their lives in the misery of abject poverty.

Torygraph and Tax Avoiders Alliance “twaddle” about unions

What a lot of old twaddle from the Torygraph and the Tax Avoiders’ Alliance about “millions” being (so called) wasted on time off for trade union stewards and safety reps to represent their members.

So every time a rep goes to a meeting with a member or sits down with management to sort out local problems - this is somehow “fund (ing) the activities of the union barons”? How silly.

So what exactly are these “Big Society” Tories clones proposing should happen instead?

a. Workers facing discipline or sickness hearings should be banned from having trade union colleague representing them?
b. safety reps should not be allowed to carry out workplace inspections or investigate accidents ?
c. organisations should not consult elected staff representatives on pay, proposed redundancies or changes to terms and conditions?

This is all politically motivated stuff and nonsense and I suppose in one way we should expect such “tic for tat” attacks on the unions due to our support for Labour. Frankly, I would have thought that they could have come out with something just a little more intelligent to have a go at us.

If you are thinking about efficiency I would suggest the Tories and their allies look into the number of HR personnel in large organisations (and wages paid to the HR directors!) compared to the facility time offered to trade union reps?

The only really sensible quote in the Torygraph article is from UNISON General Secretary Dave Prentis about the role of union reps "Far from causing industrial strife, paid facility time has contributed to the lowest levels of strikes on record. In short – trade union facility time makes good business sense."

The TUC blog “Stronger unions” reports on the Tax Avoiders that “The voice of employers is also absent from the report – quite odd given that I assume that the TPA would regard itself as a friend of employers. Is this because only last year the CBI joined with the TUC and BIS to publish a report – Reps in Action – on the role of union reps and stated that it;

“Believes that modern [union] representatives have a lot to give their fellow employees and to the organisations that employ them”

The Ultra right wing “teenage scribblers” of the Torygraph and the Tax Avoiders' Alliance have (self evidently) no idea whatsoever of industrial relations in the real world.

UNISONactive and Socialist Unity have sensible posts on this as well. Caption from here

“Stinking Dung Hill, Utter Bollex, Bogus, Dishonest, Stream of Rubbish, Vindictive Gits” - Torygraph lies over Pensions.

The normally mild mannered blogger, Tom P, at Capital and Labour tells us as it is! Tom tears to pieces this ignorant Torygraph bile from today’s editorial.

Pensions can be easily portrayed as pretty boring but are actually desperately important to everyone but the very rich. Why on earth does the mouthpiece of the supposedly non-tabloid and “educated” Tory press want public servants to join the national race to the gutter over pension provision?

The local Government Pension scheme was actually brought into existence in the 1920’s by early Town Hall trade unionists many of whom were committed (even in my beloved Labour West Ham!) Conservative Party activists.

Surely we should be driving standards up for everyone? My public sector pension actually costs my employer far less than its personal pension stakeholder.

What kick do this new generation of Tories get out of the prospect of misery and poverty for the many in old age?