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.

A Branch Secretary Annual Report on 2012

This was my contribution to the Branch Annual Report. "2012 has been another appalling year for many of our members.

You may be one of the many Care and Support workers who have had their wages and conditions slashed or you may work in Housing  Management and had another year of pay cuts due to below inflation cost of living rises.

In one of our major employers, it is estimated that in real terms, average pay has been reduced by nearly 14% in the last 5 years since the link with RPI (Retail Price Index) was broken. No wonder so many of us find it hard to manage and pay the bills. While at the same time rental income for landlords has outpaced inflation and many senior executives have seen their pay go up and up.

Some employers and the Social Housing Pension Fund also seem to have taken leave of their senses
and are trying to close down pension schemes due to “funny money” deficits. This decision is wrong and completely unnecessary since they know that the Government has announced that the way we value pensions is nonsense and are reviewing it.

This year our guest speaker at our AGM (12 February) in the House Commons is Gregg McClymont MP, the Shadow Minister for Pensions. No doubt we will be discussing the issue with him!

It has not all been doom and gloom. We have been able to win better than average pay deals in certain
employers and we have protected many members from some of the worse attacks on terms and conditions. Our stewards and branch staff have made a difference and have kept people in jobs, stopped unfairness and supported members going through difficult times.

What has been pretty obvious to me, is by and large, in the employers where we are better organised, with greater membership density, greater number of local stewards and regular joint consultative meeting between the union and management, we have been able to achieve much better pay, protection and pension deals than where we are weaker.

This should be no surprise. This is bread and butter trade unionism. The more of us in the union, the better organised we are, the better deals we are able to get for our members. It is as simple as that.

From April this year it will soon cost you up to £1200 for an employment tribunal hearing if you are unfairly
dismissed, discriminated against or suffer a determent. You cannot rely on your employer or the law to protect you at work. You can only rely on your trade union.

So once again I ask us all to recruit more members and nurture more activists and stewards. It is in everyone’s interests that this happens and it is the only way in the long term that we can increase your pay and better protect you at work.

John Gray

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%".

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.