UNISON LGPS Seminar "Governance, Economics and Performance"

There are still places available (you have to be UNISON LGPS member and I assume apply to your branch/region/scheme for any travel/accommodation costs)

National Seminar: Local Government Pension Scheme (LGPS)

Governance, Economics and Performance

Monday 30^th September 2013 - 10.30am to 3.30pm

UNISON Centre – 130 Euston Road, London

The union’s Capital Stewardship Programme is holding a seminar for all regions and branches on the governance and economics of the LGPS. There are major reforms being proposed by the government for the management and organisation of the LGPS funds in England and Wales.

These can be found here on the UNISON web site http://www.unison.org.uk/at-work/local-government/key-issues/pension-power/resources/

The union has began a major organising campaign to discuss how best regions and branches can respond to these reforms.

Subjects for presentation include

• Public Services Pension Act and the LGPS
• How are the LGPS funds currently governed and UNISON proposals for change
• UNISON plan to meet the organising challenge of governance reform
• Economic performance of the LGPS funds
• Costs, structure and mergers – a panel debate – external speakers offer their views
• Responsible investment – in and outside the LGPS – a panel discussion

Email for registration form m.roper@unison.co.uk

Best wishes

Colin Meech, National Officer, Capital Stewardship Programme

Payday loan pension scandal? Disinvest or engage?

I have been very critical about the Social Housing Pension Scheme (SHPS) on their decision to raise contributions to the scheme for what I think are "artificial" deficits.

Yet I think that industry magazine "Inside Housing" has got the wrong end of the stick about its front page story on Friday "Revealed - Pay Day Loan Pension Scandal".

The "Scandal" is that the £2.6 billion SHPS invests less than 1% of its money in rip off Pay Day loan providers as does the Cheshire Local Government Pension Scheme (LGPS)

My view on this are similar to the post I made about the similar pickle the Church of England Pension fund found itself in last month.

Pay Day lenders have "despicable business model based on ripping off its vulnerable customer base but hey, "welcome to capitalism", this is what happens when you get poor corporate governance of a company coupled with wholly inadequate state regulation.....engagement by responsible investors with the companies they own is key".

Pension Scheme trustees have a fiduciary duty to run funds in the interests of beneficiaries.  They have an obligation to take advice from their professional advisers on where they should invest beneficiaries money.

To ignore this advice there is very slippery legal and practical slope if you decide to call for disinvestment on "ethical grounds". If you are a Muslim then you would probably want to call for disinvestment in all companies that lend money for interest (its all "usury"). So no investment in any banks or insurance companies then? If you are a vegetarian or vegan you would be unhappy in any investment in companies that take part in the production and sale of meat. So no investment in supermarkets or shopping centres?

Teetotallers would object to companies that sell alcohol, animal rights activists would object to investments in pharmaceuticals and environmentalists would not want their money in oil companies or mines. I can go on and on - but I think you get the picture.

What all pension trustees should be doing is making sure that they and their fund managers engage with all the companies that they own to try and ensure that they are socially responsible.  SHPS should be working with other pension funds to firstly in private, try and change pay day loan business models. If (and when) this fails then they should instructing their fund managers to vote out the company Board and Executive team at the next AGM.

Now, I am currently unclear whether SHPS do any engagement? I am not sure either about the quote in "Inside Housing" from Cheshire LGPS that  they do "not operate a socially responsible investment policy". Since it is clear from their statement of Investment Principles that they do (if appropriate) - and they are members of the Local Authority Pension Fund Forum (LAPFF), who are very well known for their active engagement with companies on a whole range of socially responsible investment issues.

I think that the key development in pension fund governance in recent years is the rising (not total) acceptance that you will in the long run get better returns from investing in well managed and responsible companies and that trustees have a duty as owners to try and ensure the companies they invest in act in this way.

The real "scandal" of Pay Days loans is the failure of successful governments (including Labour) to properly regulate the sector. Hopefully the next government will sort this out. In the meantime the SHPS, the Pensions Trust, the LGPS and all the Pension funds in the Community and Voluntary sector ought to be working together to bring about meaningful change in the companies they own.

How we pay for the City (& expensive Red Wine)

I recommend that if you have a funded Pension that you listen to this excellent Radio 4 programme "How You Pay for the City".  

Former fund manager David Pitt- Watson pointed out that excessive charges in the UK compared to  Holland means that the average comparable dutch pension will be 50% more than you would get in the UK.

While the incomparable Mr Colin Meech, UNISON National Officer for Capital Stewardship, thinks that the Local Government Pension Scheme is just being ripped off. He recounted how a colleague who became a fiduciary trustee on a large scheme was shocked to find that the trustee board spent more time being wined (at £100 per bottle!) and dined by fund managers than they spent supervising the scheme. I have heard the same story from that colleague.

It is not just excessive fees by fund managers but also "churn" (excessive buying and selling of stock); stock lending (they lend out your share certificates for a fee), "Custody Banks" (if something is too good to be true...) and "transitional management" (there is a completely shocking story how the Royal Mail Pension fund was cheated and how a judge was told that an untruth was not a lie)

By coincidence we heard similar arguments at the AMNT Summer Conference from Michael Johnson that I posted upon yesterday.

UNISON Labour Link Forum 2013 - "Decent Pensions for All"

I was unable to go to this years' UNISON National Labour Link forum since it clashed with my local Councillor selection hustings (I was reselected as a candidate for West Ham ward in 2014).  Which is a great shame and the first one I have missed in years.

Top Greater London Regional Labour Link elected rep, Linda Bentley, moved our London region motion "Decent Pensions for All" which was passed overwhelmingly by the Forum.  Below is her speech.

"Forum, private and not for profit employers providing public services up and down the country are getting rid of their guaranteed defined benefit pensions schemes - and replacing them often with grossly inferior and insecure pensions.

Sodexo, The Pension Trust, G4S, the Social Housing Pension fund and even the national charity Barnardos

While other employers are planning huge hikes in pension contributions for our members if they want their schemes to remain open. This will in many cases lead to the schemes being unaffordable to members - who will just leave. - Which of course means that these schemes as well will simply close.

Forum, we must oppose these closures not only because we want our members to retire in dignity and not die in poverty. But Forum, our members are being conned out of their pensions by the financial services industry.

They say guaranteed pensions are too expensive? This is nonsense. The way they price pensions is outdated and simply wrong. They price so called pensions deficits by reference to the price of government bonds called gilts. Due to the current economic crisis these gilts are at a 200 year low. But why is this 200 year low price is still used to justify closures?

Forum, modern guaranteed defined pensions are as affordable now as they have ever been. For example the cost to employers of the Local Government Pension Scheme is fixed at 13% of wages. That is not unaffordable.

One other thing forum. Why don’t unions in this country help provide pensions as they do in many other countries? Is one reason why members in private companies won’t join a pension scheme is because they just don’t trust the financial services industry? Isn’t the provision of pensions something the labour movement should be at least looking at?

Finally Forum, in my view if guaranteed defined pensions schemes like mine only remain in the traditional public sector then our pensions will never be safe. We must have guaranteed pensions in the private sector – we must have decent pensions for all".

Local Government Pension Scheme: Past & Future: Reform or Revolution?

Check out this PowerPoint presentation I made on the LGPS to the AMNT open meeting last month.

#UNDC13 Capital Stewardship fringe - Wednesday Evening

Picture from UNISON NDC Capital Stewardship fringe "time for members to govern their money" with UNISON national officer Colin Meech, Mo Baines from Greater Manchester Pension Fund (Chaired by NEC Jane Carolan in the middle)

Colin spoke about the need to bring the fund management of the local government pension (LGPS) fund "in-house"and stop being ripped off by City fund managers. He briefed us on the new governance arrangements of the LGPS which will probably come into effect in 2015 (we think).

Mo praised Colin for his work on pensions. He had been the first to point out why schools and hospitals use PFI to fund rebuilding when we have money elsewhere?

The Greater Manchester Pension Fund (GMPF) is worth £10 billion but it only has trade union  observers with no voting rights. The fund is looking into localised investments. It wants to build 240 homes for market rent. If you pay into a pension scheme then the area you live in should also benefit from scheme investments.

Mo said that fish always rot from the top. We should make sure that in the LGPS we change fund management from the top.

My question to both is that UNISON should consider regional networks of LGPS pension reps to encourage and give face to face support to reps? There use to be a national network of LGPS reps who actually sit on pension panels and committees, who could be consulted and give feed back on what they they need to help them carry out their duties.

Colin responded by saying there will be a national consultation forum. He warned us not to underestimate those who feed off your money. Do they want to give this up? There are huge vested interests. The LGPS has high fees plus hidden charges. You could clear pension deficits within 8 years if the LGPS was merged & you cut costs and raise performance.

AMNT at Pensions and Benefits Show (and pros & cons of fiduciary management)

This picture from the Pensions and Benefits show at the Excel Centre in London earlier this month.

The Association of Member Nominated Trustees (AMNT) had a stall during the 2 day event run by AMNT volunteers.

I only managed to pop in briefly during the Wednesday lunchtime to say hello.

Beforehand I went to a presentation on "Fiduciary Management" by MN.

They reported that in June 2007 the average DB pension fund was 124% funded! Now it is only 84%. The Fiduciary Management argument is that they can close this closing gap by pooling investment funds and cut costs and improve performance.

I think there is an argument that scale can achieve this but in the Q&A I questioned why they use the term fiduciary when actually they have no fiduciary duty to pension trustees? Their fiduciary duty is to their owners and shareholders. 

I think that this is a fundamental confusion. On a more positive point I did wonder whether this model could be considered as an option in the consultation currently taking place in the Local Government Pension Scheme? Individual LGPS could remain while they pool fund management?

NAPF Local Government Conference 2013

On 21st May I attend the National Association of Pension Funds (NAPF) Local Government Conference. The keynote speaker was the Minister for Local Authorities, Brandon Lewis MP.

Now I know many people think pensions is boring but there are 4.6 million people in the UK who are members of a Council pension scheme. Collectively they are all worth around £150 billion and if combined would be the 5th biggest fund in the world. 

The minister announced a "root & branch review" of Council pension schemes (LGPS) including possible merger of the current 99 separate funds. He said "things will change but nothing ruled in or out" at this stage.

In the Q&A I asked him what is the main driver for merger-  is it to save money or is it to save the economy through infrastructure investment?  He suggested that the LGPS is bigger than the Canadian public pensions schemes but does not have their scale and efficiencies (answer - main driver is to save money - but I am not convinced this is the reason)

Next we had "Implementing the LGPS 2014: from here to go-live".  First was Chris Megainey, a senior civil servant from the Communities and Local Government department (who was described as the"new Terry Crossley"). His big news was that the new governance arrangements for the LGPS would not be in place before 2015. Rodney Barton from West Yorks Pensions scheme spoke about the huge threat to schemes from the complex career average administration arrangements.

Brian Strutton from the GMB reported on the LGPS Workstream 2 "governance & cost structure" and the problems of trying to convince the HM Treasury that there is a difference between a funded and unfunded public sector pensions scheme (NB £150 billion of assets methinks!). There appears to be some sort of classic "fudge" agreed with different valuations being allowed.

My question to panel was while it is important to get the details right, LGPS 2014 and auto enrolment means there is a massive opportunity to increase membership into the scheme but this will need local and national campaigns. (answer from Chris that there is no national money available so will have to be local).

I then went to the "All Change: Employer security & the new LGPS" workshop. Schemes face grave problems if admitted body employers go bust without adequate security and also these employers face often massive termination debts when the last employee retires. I asked the question that to avoid these debts should employers apply to open schemes to new entrants? Especially since the LGPS 2014 has radically changed due to cost sharing? (answer from panel that some employers have indeed done this just to avoid existing debt. But this is a cynical response? Well, cynical or not it makes sense to me!)

Back to the main conference room for "The 2013 Valuation: Health Check Results" to hear Ronnie Robertson from Hymans Robertson. The 2013 valuation is likely to be the 3rd "bad" funding vaulation outcome in a row. Employers such as housing associations will find it "very scary".  He quotes Michael Johnson who describes underfunded pension schemes as being in a "death spiral".  The interest on deficits & less assets means the fund eats itself.  My question was is the real problem the way we measure liability? investments are up but liabilities are much, much higher. Gilt yields are at a 200 year low? Yet it drives the entire investment philosophy? (answer was yes but no but)

Next workshop was "Responsible Investment: what it means for the LGPS?" NAPF used this to launch a new report on RI here.  Dr. Craig Mackenzie from Scottish Widows pointed out how much things had changed since in past there use to be argument about whether RI was even legal for pensions to consider. My question is there hard data available that can show pension committees that RI not about hugging trees but delivers superior returns? (answer: Yes, lots of it)

The last business item of the day was to be a bun fight debate on LGPS merger. However it turned out to be a bit of a let down.  Edmund Truell from London Pension Fund Authority (for merger - and general world domination) and Nicola Mark from Norfolk Pension Fund (against merger) were too polite and reasonable for a great debate.

Edmund argued that in London alone they could save £120-200 million per year from merger and unless we do so we are essentially all doomed. Nicola counted that all new local government ministers firstly ask why can't we merge the LGPS? -  then they ask "how can we get our hands on this money". She pointed out that if there is a 1% change in the Norfolk £2.5 billion scheme investments there is a £25 million difference. If there is a 1% change interest rates its impact is £480 million

My question to both was if pension funds are supposed to act in the interests of beneficiaries and with LGPS 2014 there will be risk sharing with employees, what consultation have you done with beneficiaries on whether merger is a good thing or not? (from the rather wafflery answers clearly neither have done any such consultation. Which I knew already since I have members of my trade union branch in both schemes. So why do they think they can speak on their behalf?)

The guest speaker at the dinner event was former adviser to prime minister Tony Blair, Alastair Campbell. Who gave a typically entertaining and provocative speech. For once I did not ask any questions.

I missed the next day's session since I had to go to a Pension Trustee meeting.

Why you should join your Pension Scheme

This post is based upon a speech I made at the Newham UNISON Local Government Branch AGM held at East Ham Town Hall last month. I was there as the London Regional Finance Convenor and had been asked to speak on why members should join the Local Government Pension Scheme.

When speaking about pensions the 1st point you must make is explain that the reason for having a pension is actually quite simple – it is about preventing poverty in old age. Poverty at any time in your life can be a pretty miserable experience but at least if you are young then you have time to better yourself but if you are poor and elderly then it is far more difficult if not impossible.

I am able to point out that one of the most depressing things I see as a Housing officer is visiting pensioners in winter, who live in one room freezing in front of an electric fire. Who buy second hand clothes and live on out of date food, ashamed that they cannot afford to go on holiday or treat their Grandchildren.

2nd Point: Pensions are expensive. There is an old rule of thumb in the pension world that to retire on half pay and get a lump sum, you need to have the equivalent of 15% of your pay put into a pension for 40 years.

That is why it is so important that you start your pension as soon as possible and if you have the chance to join a decent employer scheme then go for it.

The 3rd Point: is to explain that company pensions are part of your pay and your terms and conditions. If you don’t join the LGPS you are losing the at least 12% of your total pay. Even in the private sector good employers will put at least 10% of your pay into your scheme. This could amount to hundreds of pounds per month, thousands of pounds per year. If you don’t join then this money is gone forever and there is nothing you can do to get it back. Not only that but you also get substantial tax relief on your pension contributions, with the government in effect paying 20 to 40% of your subs. So if you don’t join the pension not only are you cheating yourself out of thousands of pounds of pay but you helping the government save money by volunteering to pay more tax than you need to pay.

4th Point is you cannot reply on the state for your old age. The new Government Universal pension is going to be around the existing pension credit level (poverty line) of £144 per week. While some commentators think that a non means tested state pension at this level is too much and unsustainable, most of us would think that £144 per week (£7,488 per year) is no where near enough to live on. At age 65 the average male will live another 18 years and the average female 20.6 years. Living on the poverty line for the last 1/3 of your life is not going to be anyone’s lifestyle choice.

Some people say that their house or business will be their pension. I don’t think that they realise just how expensive it is to replace your income in retirement. If you want an extra £100 per week pension annuity (£5000 per year) with some protection against inflation you would need a lump sum of at least £150,000.

5th point: Finally with a good defined benefit pension such as the LGPS your pension is guaranteed, it increases in line with inflation, you are protected against ill health and disability and it will pay out for 10 years after your retirement (regardless of how long you actually live).

While there are good defined contribution pensions (where employers pay at least 10% of salary and provide ill health insurance) they are not guaranteed, can be very expensive to run and don’t automatically protect your partner or against inflation. If you have the opportunity to join a company DC that has employer contributions (or are auto enrolled into one) then you should normally do so. The only exceptions may be if you are on very low pay or near retirement and are likely to be dependent on housing and council tax benefits you may need further advice.

What we should be thinking about is setting up a new defined benefit scheme for the private sector based on the new look LGPS. The idea that there is no future for defined benefit schemes in the private and voluntary sector is simply rubbish.

I am more than willing to come to trade union or local Labour Party meetings to talk about pensions.
(hat tip LPFA for picture)

A thousand trustees for the LGPS

This is an article I wrote on behalf of the AMNT for Professional Pensions on the future Governance of the Local Government Pension Scheme.

"The Public Sector Pensions Bill is currently on its way back to the House of Commons after being amended by the Lords. One of these amendments, accepted by the government, is that the proposed new Local Government Pension Scheme boards will have 50/50 employer/employee representation.

There are 101 separate council pension funds in the UK. At the moment most of details are still unclear but it is thought that board members will have similar powers and responsibilities as those of trustees in private sector defined benefit schemes.

Most existing LGPS schemes are supervised by elected councillors with often little or none beneficiary representation. If for example it is agreed that these new boards had ten members each, then there is a huge organisational and logistical challenge ahead. It is thought the new governance arrangements are planned to start in April 2014.

While many existing councillors may simply switch from existing committee panels to boards, they will have to be selected, trained and supported in the new arrangements. Employees will in many cases have for the first time the right to representation and full voting rights.

I have been an employee representative on a London LGPS since 1996. At first for many years I was called an "observer" on the pension investment committee. This meant that I had no vote but did have access to papers, attend beauty parades, training and could ask questions to advisors and fund managers. This changed and now I and one other employee representative have two seats and voting rights on the investment panel and a seat but without voting rights on the formal council pension committee.

I would point out that we have never felt the need to actually force a vote at investment panel. Like the vast majority of private sector pension trustee meetings, issues are best dealt with by consensus whenever possible. I don't expect that to change with 50/50 representation.

This is a huge step change for employees and the local government trade union Unison is already planning an ambitious recruitment and training programme for representatives. With a 19.5% total contribution cap it is now very much in the interests of employees and employers to make sure the fund is well run and efficient.

Professional advisers and fund managers will also have change the way they do business with the LGPS. The issue of the merger of LGPS is separate.

Everything will have to change to some degree. I am also an employer trustee on a private DB scheme and it has been a very different experience to that in the LGPS.

It is vital that we get the LGPS governance arrangements right. Not only are four million people in the UK members but it is collectively the biggest funded pension scheme in the UK with around £150bn in assets. Meanwhile some senior members of the government have privately referred to the LGPS as the British sovereign wealth fund and hope it will invest more in housing and infrastructure to kick start the economy.

The AMNT welcomes this development which puts to rest this governance anomaly between public and private funded DB. Can the government now tackle the appalling governance gap in contract-based defined contribution schemes?

John Gray is chairman of the AMNT DB working group"

Boris and his Pension Merger Plan to Rescue GB Plc

On Monday the FT rather oddly announced that the new Chair of the London Pension Fund Authority (LPFA), Edmund Truell, with the support of Mayor Boris Johnson, is to merge all 34 London Staff Council funds "into a single scheme and channel more investment into the capital’s infrastructure projects".  The Evening Standard also waded in on Tuesday in a similar vein here

The fact that neither Boris nor the LPFA has any legal powers to do this was not mentioned.

Now it makes perfect sense to look into merger in order to see if it will save money and stop Councils and pension scheme members being ripped off by vested interests. Equally, no one would be more happier than me if we could use pension funds to kick start the economy and say build more homes.

But there is a problem. Some 4.6 million Brits have a local government pension entitlement. Its primary purpose is to pay an income in retirement and not to be a substitute for inadequate investment in infrastructure by Government.

Some people also think that the LPFA is looking at merger due to its own internal financial predicament as a mature scheme with many pensioners claiming their money but relatively few active members still paying into the scheme.

There has also been claims of scaremongering. The Local Government Pension Scheme as a whole has assets of £160 billion. It is not broke. Some schemes do indeed have difficulties but in many cases this is due to outdated and irrelevant accounting measures which price scheme liabilities on the current abnormal 200 year low in gilt yields.

So far there has also been no mention either that in the new LGPS 2014 scheme members (and their "widows & orphans") will face the future costs of poor investment performance.  Under European and UK law pension funds must be run in the interests of beneficiaries, then the case for or against merger or for investment in any particular asset class, must first and foremost take into account their interests. Not short term political ambitions for a flat in Number 10.

There are a number of obvious risks. What if merged Council pension funds invest in building homes for rent and there is a property price crash? What if investment in alternative electricity supply is undermined by a change in future Government policy? In other countries pension funds that invest in infrastructure get significant Government financial support or guarantees.

There is also the issue of "why only the LGPS?". While it may seem rather strange that there are 101 separate LGPS schemes worth £160 billion, there are about 53,000 private Pensions schemes. The vast majority of whom are tiny. How well managed are they? This is also important to GB Plc since the Private sector defined benefit schemes alone have £1.1 trillion in investments. Surely it makes sense to look at merging private sector schemes as well?

The Secretary of State, Eric Pickles, who the FT claims is a supporter of Council Pensions merger, may have the legal power to force merger.But unless this is done sensitively and by putting the interests of beneficiaries first, then it is likely to end in tears. Which if the supporters of merger are right, would indeed be bad news not only for the LGPS but also for GB Plc.

"Will no one rid me of these turbulent Member Trustees!"

I've been sent a rather odd and disturbing link to a story here on "Engaged Investor" magazine's website.

In which a pension consultant is quoted as saying he understands that the Government is maybe thinking of getting rid of Member Nominated trustees who sit on Pension scheme Boards???

So who will replace the  representatives of those who actually pay into the pension scheme and act as the owners of their capital? Let me think now? - perchance, more highly paid consultants?

The timing seems most peculiar, since the Government has recently agreed to a significant increase in member nominated representatives (MNR) in the Local Government Pension Scheme and is making promising noises about giving more powers to MNRs in Governance Committees for Contract based pensions schemes and Master trusts. I fully expect the next Labour Government to continue with this process.

I actually support the important role played by professional advisers and consultants in running pension schemes and think many of them are honourable and genuinely want to do the right thing for us. However, there is no getting away from the fact that we have the fiduciary duty to our beneficiaries and they do not.

But as the full article in Engaged Investor makes clear, never forget the reason, why the requirement for member nominated trustees came about in the first place. The picture above is of Bob Maxwell in his famous yacht a year before his death, who stole hundreds of millions of pounds belonging to pensioners.This resulted in legislation that requires at least 1/3 of member trustees make up the Board.

The institution of trusteeship in this country is centuries old and although not perfect is still fit for purpose. Our primary role is to ensure that the money we hold in trust is held for the benefit of the beneficiaries and not be totally ripped off by those who are paid to manage our money. Even Adam Smith (not someone I normally cite on this blog) would have understood this.

In the past some trustees have not been properly trained and supported and have been held back on Boards. The requirement to have member representation and the growth of trustee based organisations such as the TUC Trustee network and especially the Association of Member Nominated Trustees (AMNT) will help counter these problems.  

Anyone who opens a newspaper or who turns on the telly to watch the news, will be aware on practically a daily basis, that we actually need more member trustees and representatives looking after all aspects of our money - not less.

Fix "Death Trap" Factories in Bangladesh

Add caption

Click here to sign the petition to H&M, Gap and Walmart for them to join a fire safety programme and fix their ""death trap factories" in Bangladesh.

I posted on the "True Price of Cheap Fashion: 120 burnt or jumped to death at Bangladesh Textile Factory Fire" here on 1 December.

Following a recent London UNISON Pension network meeting I am drawing up questions that Local Government Pension Scheme (LGPS) member nominated trustees should be asking their fund advisers and managers about what they are doing to make sure that the companies we invest in do not pay dividends in blood money.

Ordinary UNISON members can also ask these questions of their schemes? I will post them as soon as I can. 

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?

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.

London Councils Summit 2012

On Saturday I went to the London Councils Summit at the medieval Guildhall in the City of London. I had my ward surgery at 10am so I missed the morning session and opening keynote speech by London Mayor, Boris Johnson. I gather it was as silly and superficial as usual.

I stopped off at a lunchtime London Councils "micro-surgery" on "Social Media" and came away convinced that I should try a "Tweet up" Councillor Surgery. Tell everyone I will be available on twitter on such and such date and time for 1 hour for West Ham ward matters. Watch this space.

After lunch I went to the breakout session "Mind the funding gap" with  Cllr Richard Cornelius, leader of LB Barnet, Cllr Catherine West leader of LB Islington, Chair John O'Brien and LSE director, Tony Travers.

We all live in our own political comfort zones and bubbles. So it is rewarding to come out and meet the enemy, and find they are as convinced and comfortable with their own political prejudices as you are with yours. Catherine and Richard are chalk and cheese. Yet they were both polite and humorous in their attempts to convince us of the merits of their very different approaches to the dire and desperate financial situation we are in.

In the Q&A Richard was not impressed with my comment about the report last week by PWC that London Councils pension funds could have been £1.6 billion better off if they had merged. Nor that the outsourcing of all Barnet Council back office services will result in his pension scheme going belly up and this will completely wreak their finances.

You can check out my twitter account of the debate here 17 November 2012.

The final session "taking the temperature - London's Political Landscape" by Robert Gordon Clark and Tony Travers was so interesting that I stopped tweeting in case I missed anything. You can check out what people did tweet about at #lcSummit. 

Council pensions, mergers and the infrastructure cacophony

(this is an article I wrote for Professional Pensions which was published yesterday on behalf of the AMNT. An earlier John's Labour Blog version is here).

"Recently Sir Merrick Cockell, Chair of the Local Government Association announced that he personally supported the merger of the 101 different Local Government Pension Schemes (LGPS) into 5 “super schemes” each worth around £30 billion each.

He was being interviewed about a report from The Future Homes Commission on the need for investment in residential property. He argued that to invest in such infrastructure you need massive scale. There are claims that this merger and investment could result in 300,000 more homes being built every year with 15% of pension assets being invested

His comments are likely to be more than a little controversial in the sedate world of Council pension funds.  Merger is controversial. Some funds have consistently argued for merger in the past not only to enable infrastructure investment but to increase returns and slash costs. Others say "rubbish", bigger doesn't mean better and small is often beautiful (and more democratic and responsive).  The fragmentation of pension funds in the private sector is also far worse.

Yet, the governance concern about these proposals is even more significant than a spat over size.

As a LGPS member nominated representative I have been in favour of looking into the merits of merging Council pensions schemes for many years. Also investing in rented residential properties as an asset class with the prospect of long term inflation linked returns has always seemed attractive.

But remember pension funds must be run in the interests of the scheme beneficiaries and not make up for an inadequate state housing policy or the need to stimulate demand in the wider economy.

Have Councils in favour or opposed to merger actually consulted beforehand on this issue with their beneficiaries? Why is the government being let off the hock and not asked for guarantees?

The local government trade unions have quite rightly objected to this plan which was made without any consultation with them.  There is a planned cap on employer contributions to the LGPS so if this infrastructure investment goes belly up then active beneficiaries will be left to pick up the pieces.

15% is a very significant amount of assets to invest in any one class. Nothing in life is risk free. There is an obvious risk of property price crashes or even that future housing benefit cuts could derail plans.  Hundreds of organisations are cited as contributing to the Future Homes report but there is no input from those whose money it is being proposed should be put at risk?

For this still worthy proposal to have any legs there needs to be firstly proper consultation with the representatives of scheme beneficiaries on why this is good for them and then the drawing up of a business plan as water tight as possible".

Update: The Government are now consulting on plans to allow Council Pensions to invest up to 30% of its assets in infrastructure? Up from the existing limit of 15%. Hello, 30%! What is going on here?

Council Pensions, Mergers & the Infrastructure Cacophony

This morning I was surprised to hear Sir Merrick Cockell, Chair of the Local Government Association (and Leader of Kensington and Chelsea) say on the Today radio programme that he (personally) supports the merger of the £150 billion Local Authority Pension Scheme (LGPS) into 5 or so funds only. There are currently 101 different and separate LGPS funds.

He was being interviewed about a report from The Future Homes Commission  about the need for investment in residential property. He argued that to invest in such infrastructure you need massive scale. There are claims that this merger and investment could result in 300,000 more homes being built every year.

His comments are likely to be more than a little controversial in our sedate world of Council pensions. I am reminded of the bun fight in City Hall here between "merger-ists" and "merger deniers" and the epic battle earlier this month here between the "Wandsworth" Council bulldog and "Gentleman Jim" LPFA.

One side argues that if the schemes merge they will be big enough to invest in such infrastructure funds that will not only provide homes, a much needed boost to the economy but also increase returns and slash costs. The other says "rubbish", bigger doesn't mean better and small is often beautiful (and more democratic and responsive).

By coincidence on Wednesday evening I went to the Parliamentary launch of the report by the Smith Institute "local authority pension funds: investing for growth".  It makes a number of recommendations but broadly supports the idea of a "clearing house" and "pooled" LGPS funds to invest in social housing and infrastructure. Local Authority Pension Fund Forum (LAPFF) Chair Ian Greenwood made it clear at the meeting that the forum was "neutral" with regard to merger of its funds.

In the Q&A I made the point that the report itself didn't appear to address any significant beneficiary concerns and a major reason why pension funds can't already invest in social housing is that property fund managers don't want anything to do with "plebs" and only want to invest in shiny new shopping centres and warehouses. Comrade Michael Johnson threw his usual hand grenade into the proceedings by stating that the LGPS is an Empire run in the interests of the Empire rather than its beneficiaries.

Following this mornings report UNISON has quite rightly reminded everyone that the absolute legal duty of pension schemes is to act in the interests of its beneficiaries (not to make property developers rich).  While I am pretty sure that this does not mean that UNISON is necessarily opposed to such investment, those who propose it need to be damn sure that these investments benefit our members.

Out of the hundreds of organisations that are cited as contributing to the Future Homes report there appears to be no input whatsoever from those whose money it is being proposed should be put at risk?

Check my twitter account @grayee for more details on the "epic battle" (10 October) and Smith report (24 October).

Council Pension fund to build homes

Congratulations to Greater Manchester Pension fund (GMPF) for running a pilot scheme investing in 240 new homes for affordable rent and discounted sale. I'm still not fully aware of all the full details but what I understand so far it just makes perfect sense.

Councils have land, planning responsibilites, massive waiting lists and staff pension funds crying out for secure long term inflation linked investments.

£11 billion GMPF is obviously better placed to be able to fund such schemes than smaller Council funds, but I hope this is a welcome start.

UNISON members Vote by 90% to accept new LGPS!

Great news. UNISON has announced that members voted in a secret ballot by 90% to accept the new Local Government Pension Scheme 2014. Ignoring the moanie, fibbing misrabalist rejectionists who for selfish sectarian reasons wanted them to turn down a good offer to indulge in pointless strike action and the inevitable "glorious defeat". On Monday the GMB voted by 95% to accept.

While there were some who had genuine doubts about the new scheme, I would hope that everyone (apart from the miserablists who will be crying betrayal) will rally around the new scheme and encourage the shocking 25% of those eligible who haven't yet joined to join. There is still further work to be done especially around member representation and governance. The new LGPS will be a fair, affordable and sustainable model for a rebirth of private sector defined benefit pensions scheme.  In the meanwhile we should be also looking at encouraging other employers to consider joining.

This result will also encourage the union's in forthcoming campaigns since we can demonstrate that by a combination of rational argument, mobilisation and targeted collective action we can win for our members.

Update: Unite members have also voted to accept LGPS 2014 by 84%. Hat tip UNISONactive