The Root of all Evil in the Local Government Pension Scheme

The Pensions Institute last week issued a very provocative report which does raise some important points about process and scale but misunderstands the real nature of the governance deficit in the LGPS (in London and elsewhere).

Which is Councillors have a clear fiduciary duty to Council tax payers, but pension funds should (must by European law) be run in the interests of beneficiaries not employers. This dichotomy does mean that some LGPS schemes have indeed made poor decisions based on Council tax considerations. However, this is not just a “London thing” and some of the larger schemes have faced similar accusations.

Unlike the private sector Defined Benefit schemes where you have at least 1/3 beneficiary representation there is no similar legal right in the LGPS. Some schemes have consistently refused to have any beneficiary representation not even as observers.

Member nominated trustees and representatives (MNR) have a real interest and “ownership” of their schemes. The trustee model has its faults but on the whole has worked well over the years in trying make sure that pensions schemes are well governed and principles are not ripped off by agents. We need to do much, much better, but if you have no effective beneficiary representation on schemes and also a fundamental conflict in fiduciary duty then no wonder some of them go astray.

The answer is to mirror the best practise in private sector DB schemes and have statutory beneficiary representation in the LGPS as well as employers. The fiduciary duty of all representatives must be to the beneficiaries.

It is disappointing that this Pension Institute report has not had any input at all from existing LGPS beneficiary representatives nor does it make any reference to the changes already agreed to the scheme such as theire will be an employer contribution “cap and collar”. This is probably the most significant development in LGPS governance in decades.

I must admit that the “evidence” in the report for the serious “wrong doing” suggested is pretty weak and antidotel. It may or may not be true (and I strongly suspect some of it is) but I wonder if this aggressive approach is the best way forward to win hearts and minds for change?

As s LGPS activist for a number of years, I would also disagree that elected Councillors are “dominant” on London schemes. In fact I will say the opposite and it is professional advisors and Council Officers who are dominant (and in that order). That makes for more potential fiduciary conflicts.

It is illogical to complain of Councillors dominating schemes when at the same time arguing that their 4 year election time span is too short? This is also obviously not just a problem in London and is another argument for MNR to play a positive role like they do in the private sector schemes. MNRs are also more likely to provide continuity. Since I have been a MNR in my scheme in 1996 all the original Councillors, Officers, professional advisers, actuaries and fund managers I first worked with have long gone.

Scale is a crucial issue but it is also one for the private sector. Having 101 pension funds sharing £150 billion is inefficient but what about the hundreds of thousands of tiny private DB/DC schemes? What about the billions invested in contract schemes which have no independent oversight or beneficiary governance?

No recognition either that the way pension liabilities are calculated in the public and private sector schemes is  a complete nonsense due to low gilt yields. Yet they are driving repayment plans and long term asset allocations.

I also wonder about the tabloid references to “gold plated pensions” and “DB in the private sector is dead” (in press release)? The average pension for a women retiring from the Council in 2011 was £2780 per year? Hardly “gold plated”, also there are still 3 million workers in the private sector accruing DB pension benefit. As well as 25% of the LGPS who now work for private organisations?

Just because in the private sector it is now the fashion for many employers to turn their backs on their workers and are seemingly quite happy for them to retire and then die in poverty, doesn’t mean that it is a good thing for teacher assistants, cleaners, clerks and road sweepers to have the same fate?

The taxpayer of course has to subsidise these bad employers and pick up the bill for their poverty pension provision. This will have to change and the reintroduction of DB into the private sector is the only way it is going to happen.

I am also surprised to the reference about the discredited Channel 4 programme and the supposed link with LGPS and Council tax? I think I am right that 80-90% of Council income comes does not come from council tax e.g. Government grants, business rates, charges, fees etc. How is it therefore relevant to link LGPS contributions only to Council tax?

In short I am glad that this report has meant that long standing concerns about LGPS governance being fit for purpose are at long last out in the open. Yet it has ruffled feathers amongst those who are broadly supportive of change and has failed to take on board the argument that it is the democratic deficit that is the root source of most if not all evil in the LGPS.

Notting Hill Housing Trust: Strike Action Back on!

Following last month’s successful strike UNISON had suspended any further action while trying patiently to negotiate and reach an agreement with Notting Hill Housing Group to resolve the dispute. Despite this act of good faith senior management are still refusing to allow UNISON to even speak to its Board and are still refusing any attempt at mediation via ACAS.

You do wonder what is the point of such nominally “independent” Boards when they are so scared of going against their CEO that they will not even listen to their employee representatives? What is wrong with having genuine two-way conversations? Isn’t it supposed to be “good to talk”? Why do they only listen to their Executive team's hugely expensive "remuneration consultants" - but not their own staff reps???

No wonder so many people believe that governance in our sector is so poor and pathetic. Many Housing Association Boards (not all) are accused of being undemocratic, unresponsive self perpetuating oligarchies controlled by over paid and under supervised CEO’s. Where there are no real or meaningful “checks and balances”.  These organisations will eventually fail. Unless this is changed we will face further “Project Jerusalem's".

The Chief Executive at Notting Hill, £192k per year, £16k per month, £3,692 per week, Kate Davies, has even gone on record that the savage cuts to family friendly policies and staff terms and conditions have not gone far enough!

To come out with such stuff while on such high pay in what is suppose to be a “not for profit” charity proves to me that these people think they are some sort of superior human beings or class above the rest of us mere low wage earning proles.

Check out further background of the dispute here, here and here. Lobbies will take place next week and further significant strike action is being organised.

Housing associations are supposed to be here for the long term. They produce financial plans and projections in great detail for the next 30 years. I don’t think that people understand that perhaps the biggest threat to the long term survival of these organisations is not getting wrong a possible 30 year projected cash flow.  The real risk is the lack of any meaningful or accountable governance in the organisation towards all its stakeholders.

I have always argued that organisations and management teams such as Notting Hill who treat their staff as rubbish will also treat their residents in the same dismissive manner and will have no long term future.

Some more info from UNISON press release:

1. UNISON’s Housing Association Branch represents approximately 3,500 members in the Greater London Region and the South East. UNISON Members at Notting Hill Housing Trust took successful strike action on 15th March.

2. NHHT manages 25,000 homes in London and the South East. According to its own website NHHT has an asset base of £1,317m and an annual turnover of £167m. Group reserves on 2008/2009 totalled £188m and its operating profit was £19.8m. In June 2009 the group absorbed 3 smaller BME housing associations – Presentation, Pathway and Croydon People’s.

3. 14% of staff took paid carers’ leave in 2008/09 at a total cost to the organisation of £40,000. Chief Executive, Kate Davies total pay and reward package for the year 2008 to 31March 2009 was £192,000.

4. Paul Hodgkinson is the Chair of NHHT’s Board. He is also a Trustee of Parenting UK, a national charity that sets the policy for parenting focus in the UK. Respect for cultural diversity and the different needs of men and women within the context of human rights for all, is one of Parenting UK’s key principles.

Pensions: Who on earth is looking after our money?

An employer covered by my trade union branch offers a Group Stakeholder Pension scheme with Standard Life. As "Direct Contribution" (DC) schemes go it is pretty good but employees have to join Standard Life to benefit from employer contributions. Recently a union member in this pension scheme came to me with a letter from Standard Life which worried him. This letter explained that the company had recently found out that there had been some mistakes in its marketing literature about their Sterling Fund which as not to their "usual high standards". They offered to move his money into another fund and make up any loses.

You might think “What a decent company Standard Life is for doing this, well done for owing up and doing the right thing”.

It now turns out that Standard Life has just been fined £2.45 million for misleading pensions customers “Insurance firm claimed money would be placed into low-risk fund when it was invested in toxic mortgages” The Guardian .  They were forced to pay and had actually shamefully tried to get out of paying anything beforehand.  They had to pay policy holders in the end over a £100 million in compensation!

While I hope that shareholders will paying for this compensation and the FSA fine (I am sure that the poor old policy holders will pay somehow - I also have a paid up policy with Standard Life) it does call into question who is checking up on Standard Life on behalf of policy holders. Who can not only call to account Standard Life over their marketing material but also question why on earth were they investing in toxic mortgages in a just before you actually retire “safety first fund”?

Most proper pension scheme (defined benefit or defined contributions) have member trustees to do this job. Such Group Pension or insurance schemes don’t have trustees. They can (see here) have “management committees” but they have no teeth or legal status. What we need is a requirement for trust based effective policy holder representation on all pensions’ schemes.

After all, surely we all now know what happens when you get capitalism without any owners?

London Met University Strike

Today I went to the picket line in Whitechapel to support UNISON members of London Metropolitan University and their UCU lecturer colleagues who are on strike today over the threat of hundreds of compulsory redundancies.

The sad sorry tale of utter financial incompetency and impropriety (or even worse) by some senior managers in the past has resulted in the funding council HEFCE trying to reclaim millions of pounds of grants. The arguments actually put forward by the University to justify sacking people and “outsource” services to save money seem pretty desperate and frankly daft.

It makes you wonder (despair?) about the governance arrangements for the University. Who is responsible for the mess? Why was this allowed to happen? What is being done to make sure this will never, ever, happen again? (Or at another university or college)?

As far as I can see there is still open warfare between London Mets management and the Funding Council. How is this going to help things now and in the future? They are both responsible for this chaos and should deal with the problem without sacking loads of staff or getting rid of students.

There is a wider question about the Boards of governors, trustees, commissioners or whatever, of our traditional British public institutions. Do the so-called “great and the good” of our society who tend to populate these boards have the necessary skills, life experiences and even gumption to challenge the day to day management and give proper strategic guidance and oversight?

On the present day evidence - I think not.

It is a pity that some minor management stooges have tried to wreak the day by trying to score sectarian points and attacking the union. But I suppose that like rubbish management this is something we just have to deal with.

(Picture of UNISON branch secretory Alan Pike, a super picket and UNISON regional organiser, Harry Lister, behind a banner asking the Minister, David Lammy, for the enquiry he promised into London Met finances)