Infrastructure investment politics

A couple of stories caught my eye over the last few days, both relating to the ownership of infrastructure.

The first piece is from the FT and looks at the dividends paid to the owners of the UK's airports. This contrasts the amounts paid to shareholders and the debt issued. It also suggests friction between airport owners and airlines, with some moans about airport owners taking out dividends rather than investing in their infrastructure or reducing landing charges. I am unclear to what extent any of these moans are a) new or b) more of a general howl of pain from carriers.

However, I assume this piece has not come out of the blue. Someone has been complaining. And it's notable too that this piece is in the same sort of vein as the FT's coverage of Thames Water (though there seem to be more interesting questions about the financing arrangements in that case).

The second story is a GMB press release highlighting the largely foreign ownership of Anglian Water. I take my hat off to the GMB for getting some decent coverage out of something pretty straightforward - you can find the % of foreign ownership by looking on the Anglian Water website here. I think they are hitting on a vulnerable aspect of institutional investment in infrastructure in the UK - yes, there are pension funds in the mix, but they are largely overseas (thought 15% held in the UK is not insignificant).

As I've blogged before, I think this makes the politics a lot easier for advocates of public ownership of utilities. It's interesting that Anglian Water explicitly talks about who their owners are:

The vast majority of our shareholders are long-term public sector employee pension funds.

I don't know if this is actually true. CPPIB is not really a "public sector employee" pension fund, I think it covers everyone. Also the assets managed by IFM and Colonial First State (both of which are asset managers, not pension funds) could be public or private sector. The Abu Dhabi Investment Authority is a sovereign wealth fund I think. Dalmore is an asset manager, though does have public sector pension funds as clients. So it's only really GLIL that unequivocally matches the company's description.

The point I would take from from both stories is that there is a growing argument about the nature of ownership of infrastructure. These things have always been there (well ever since the assets were sold off), they are coming to attention now because the pressure around public ownership is building.

Severn Trent dividends

Another day, another attack on a utility company for putting its investors first....

Press release - Embargoed until 00:01 Thursday July 26, 2018

SEVERN TRENT SHAREHOLDERS MAKE £1.1 BILLION AS BILLIONS OF LITRES WASTED, GMB REVEALS

Dividends and interest worth £190 million were accrued by shareholders in 2017 alone, GMB Union figures show

An investigation by GMB, the water union, has revealed Severn Trent shareholders have made almost £1.1 billion in just five years.

The privatised water company showered shareholders with a total of £190 million in 2017 alone.

Severn Trent wastes more than 400 million litres of water every single day through leaks. [1]

Last month, GMB figures showed Severn Trent’s CEO trousered a whopping £10 million in salary, bonuses, pensions and other benefits over the past five years. [2]

The figures come from a joint investigation into the accounts by GMB and Corporate Watch [3] as part of GMB’s Take Back the Tap Campaign to bring England’s privatised water industry back into public ownership.

While shareholders pocketed these eye-watering sums, consumer water bills in England and Wales have increased by 40% above inflation since privatisation in 1989 according to a report by the National Audit Office [4]

Tim Roache, GMB General Secretary, said:

“Forking out billions to shareholders, while bills rocket and trillions of litres of water are wasted shows just how broken the system is.

“We all need water, it’s not an optional extra, it’s absurd that something we all depend on is in private hands delivering eye watering pay outs instead of being run for the public good.

“That’s why GMB is calling for the water industry to be brought back into public ownership.”

ENDS

Contact: GMB Press office 07958 156846 press.office@gmb.org.uk

Notes to editors:

[1] http://www.gmb.org.uk/newsroom/hose-pipe-ban

[2]  http://www.gmb.org.uk/newsroom/water-fat-cats

[3] www.corporatewatch.org.uk

[4] National Audit Office report: The Economic Regulation of the Water Sector, page 9 (2015) https://www.nao.org.uk/wp-content/uploads/2014/07/The-economic-regulation-of-the-water-sector.pdf 

ASOS exec pay in the spotlight

I blogged last month about the ASOS AGM results, which still puzzle me a little, but the big takeaway was a significant shareholder vote against the company's remuneration report.

Well, today we can see there are good reasons for shareholders and other stakeholders to take a look at how ASOS pays its executives. The GMB has crunched the numbers (see below) and established that when you look at chief exec Nick Beighton's total package his rewards are a feline-girth-increasing £1,000 an hour. That means he's getting 137 times more than ASOS warehouse workers, and got paid what they will get in the whole of 2017 by... err... Tuesday.

We've seen more interest/noise from investors about the scale, rather than just structure, of executive pay recently. Here's a great example of a company that is lavishly rewarding its execs whilst failing to address concerns of its workforce. There are a few asset managers with large positions in ASOS that could make a difference here - how about a New Years resolution to help fat cats lose some weight?

£1,000 PER HOUR ASOS BOSS WILL EARN HIS WAREHOUSE WORKERS’ YEARLY SALARY IN FIRST FEW DAYS OF 2017, SAYS GMB

Union reveal it would take staff in Barnsley distribution centre 214 years to earn Nick Beighton’s 12 month pay packet

ASOS Chief Executive Nick Beighton will earn the yearly salary of his distribution centre staff in just the first two working days of 2017.

January 4 has been dubbed Fat Cat Day by the High Pay Centre as it is the day the average yearly pay of UK workers has already been outstripped by the average chief executive’s earnings for that year. [1] 

But the fast fashion boss will beat even that milestone – taking home his warehouse workers’ annual £14,000 salary by around 11am on his second working day of the year.

Nick Beighton makes almost £3million a year, once his bonus, pension and gigantic share award are included. [2]

This works out as staggering earnings of £1,022 an hour [3] – more than 137 TIMES the £7.45 [4] earned by staff in the Grimethorpe warehouse, near Barnsley.

Investigations into the Grimethorpe site, which is at the heart of the ASOS’ fast fashion empire, highlight excessive surveillance of workers, extensive security checks each day (including to and from the toilet) and the use of ‘flex contracts’ that leave staff unsure how many hours they will work each week. [5]

According to reports, up to 50 per cent of the workers are employed by Transline – the same employment agency used by Sports Direct.

Neil Derrick, GMB Regional Secretary, said:

“There is nothing intrinsically wrong with chief executives earning a good salary commensurate with their high level of responsibility and skills."

“However when your lowest paid workers are treated poorly it smacks of unfairness and double standards.

“Through his incentive scheme, Nick Beighton can more than treble his salary by meeting various targets his board set for him.

“This is on top of his 104% salary bonus.

“Meanwhile workers in Barnsley are given targets so draconian they are making themselves physically and mentally ill trying to meet them – with absolutely no prospect of a bonus whatsoever. 

“With Nick Beighton paying himself so handsomely it’s no wonder growing numbers of shareholders revolted against his recent pay package.[6]

“Denying workers a union voice and the chance to better their own conditions is outrageous and unethical.”

The High Pay Centre publically criticised the long term incentive scheme many chief executives – including Nick Beighton - receive. [7]

Stefan Stern, Director of the High Pay Centre, said:

"So-called 'long term incentive plans' are not long term, and provide perverse incentives.

“The High Pay Centre has long argued that they should be abolished - they are a flawed mechanism. “

Linking the largest element of executive pay to very simple performance measures, which do not accurately reflect the complex role of leading a large company, is clearly a mistake. 

“By all means reward people for good performance, but do it in a way that is fair and can be enjoyed by all employees.

"Mega rewards just for the top are clearly divisive, unfair, and bad for business."

ENDS

Contact: GMB Press Office on 07958 156846 or at press.office@gmb.org.uk

[1] http://highpaycentre.org/blog/fat-cat-tuesday-2016

[2] Nick Beighton was awarded 36,194 shares in their financial year up to Aug 31 2016 [see page 54 of annual report] as part of performance related Long Term Incentive Plan. The ASOS sell price as of 20/12/2016 is 4,821p. £48.21 x 36,194 = £1,737,312 This is in addition to earnings including pay, pension and bonus and benefits of £1,199,520 [see page 53 of annual report] His total earnings package for the year is £2,944,432.

http://www.asosplc.com/~/media/Files/A/ASOS/results-archive/pdf/28-10-2016-ar.pdf

[3] Assuming Nick Beighton works 12 hours a day, five days a week, with four weeks unpaid holiday 12 hour days x 5 day weeks = 60 hours 48 weeks x 60 hours = 2,880 hours per year £2,944,432/2,880 = £1,022 per hour 

[4] https://www.buzzfeed.com/saraspary/these-asos-workers-are-paying-the-true-price-of-your-order?utm_term=.mxepd442V#.tldmRQQvY[5]http://www.gmb.org.uk/newsroom/buzzfeed-asos-report

[6] http://www.dailymail.co.uk/money/markets/article-3991478/Pay-revolt-online-store-Asos-shareholders-slam-bosses-proposed-multi-million-pound-pay-packets.html

[7] http://highpaycentre.org/pubs/no-routine-riches-reforms-to-performance-related-pay

Previous press releases

http://www.gmb.org.uk/newsroom/asos-catwalk-of-sham0065

http://www.gmb.org.uk/newsroom/unpaid-hours-at-asos

http://www.gmb.org.uk/newsroom/newsroom/asos-treat-your-workers-with-respect.html

http://www.gmb.org.uk/newsroom/newsroon/asos-whistleblowing-helpline.html

http://www.gmb.org.uk/newsroom/Asos-coining-it-in

http://www.gmb.org.uk/newsroom/asos-is-the-next-sports-direct

http://www.gmb.org.uk/newsroom/asos-barnsley-needs-better-pay-and-conditions

ASOS AGM action!

This week saw some great campaigning by the GMB as part of their ongoing battle against poor working practices within ASOS, which has had a particular focus on the distribution centre in Barnsley run by XPO. The GMB had a "Catwalk of Shame" outside, and a workers' annual report was handed out to shareholders. On the same day there were also claims that ASOS may not be playing by the rules in terms of pay for new warehouse staff.

Interestingly, on my turf, the company was also hit by a sizeable vote against executive pay, with 33% opposed. This generated further negative media coverage. The vote against was also double the level of opposition (16%) at the 2015 AGM, so there might be something significant going on. Notably, ASOS has not commented on the size of the vote or how it will respond. As a reminder, the UK Corporate Governance Code says (E.2.2):

When, in the opinion of the board, a significant proportion of votes have been cast against a resolution at any general meeting, the company should explain when announcing the results of voting what actions it intends to take to understand the reasons behind the vote result.

In practice, larger listed companies seem to make statements when they get votes against of about 20%+. ASOS is AIM-listed so it does not need to follow the Code. Nonetheless you might think that given all the adverse commentary - and the scale of the vote - it would be a sensible thing to do. And actually ASOS does make commentary about shareholder support for remuneration in this year's annual report (page 47):

At the AGM last year, 84% of shareholders voted in favour of the Directors’ Remuneration Report, providing an important level of public accountability for the Board with the suitability of our remuneration policy and its implementation. We hope that you find this year’s Remuneration Report equally informative around how ASOS leadership is remunerated, and some of the changes that we have made during the year. I look forward to seeing shareholders at the AGM, and hope that I can count on your continued support on our pay arrangements.

So it looks like they may have something to say in future reporting.

Finally, we can dig into the voting data a bit. One thing that looks likely is that the company's major shareholder, Danish retailer Bestseller, did not oppose the remuneration report. According to the list of major shareholders disclosed on the ASOS IR site, Bestseller owns 23m shares. And according to the RNS statement on the AGM, just under 14m were voted against the remuneration report. I think it's likely Bestseller either voted all of its shares or none.

If Bestseller DID vote for the remuneration report, then a very large majority of the remaining shareholders who voted will have voted against. The RNS statement shows a bit under 28m shares supporting the remuneration report, if you take 24m out, you are left with 4m in favour and 14m against.

Just to complicate things, it's worth registering that former ASOS CEO Nick Robinson owns 7m shares. Which means that it does not look possible that both he and Bestseller voted their whole holdings (23m + 7m) in favour of the remuneration report. I suppose it's possible one or both has sold down a bit, but it looks a bit strange on first glance. If Bestseller didn't vote at all, but Robinson did, and voted for, then the level of independent shareholder opposition must have been around 40%.

It's too early to get any public voting data on this AGM, but looking back to the 2015 AGM, we can see that Baillie Gifford, the largest shareholder after Bestseller, voted against the remuneration report. (PDF here, if that doesn't work then look for Q4 2015 voting disclosure report here - you will need to accept terms and conditions). You can also see that ASOS was part of Baillie Gifford's engagement in the same quarter (look at the Engagement Report for Q4 2015). My gut feeling is that, given the increase in opposition this year, Baillie Gifford probably took the same position, but that is just a guess.

We can also see that one of the UK's local authority pension funds - West Yorkshire - also opposed the remuneration report at the 2015 AGM. See page 119 here, from the fund's voting disclosure site. Here's the blurb explaining the vote:

For Nick Beighton’s promotion to the role of Chief Executive, the Committee determined that the annual base salary level should be set at £550,000, which is £50,000 higher than his predecessor, and the annual bonus opportunity increased from 100% to 150% of base salary. The increases have not been adequately justified. Likewise, to secure the recruitment of Helen Ashton the Recruitment Committee bought out a proportion of her current long-term incentives from her existing employment, by making a one-off cash payment of £204,000 and a grant of a long-term incentive award under the ASOS Long-Term Incentive Scheme, worth £340,000 as at the date of grant. The awarding of a cash payment on recruitment, without any performance conditions attached, is not considered appropriate. 

I will keep digging around for info on how shareholders have voted this year and last, and why. I will post up what I find.

So, to sum up, we have a high-profile retailer whose working practices in one of its warehouses have been subject to critical media coverage. We also see, despite a large chunk of shares accounted for by insider ownership, the same company experience significant shareholder opposition over corporate governance concerns at multiple AGMs. Remind you of anyone?

Walgreen abandons inversion plan

Interesting news in the past few days that Walgreen won't shift its base to Switzerland as part of its takeover of Alliance Boots. There was a backlash against the plan, known as tax inversion (also potentially part of the Pfizer Astra plan if it had gone ahead), with union shareholder activists directly involved.

As the WSJ put it:

The tactic involves using an acquisition to move corporate headquarters to a tax-friendly locale, such as the U.K., Ireland or Switzerland. Such a move could have cut Walgreen's total tax bill by a third—but also attracted attention from the U.S. government.

Notably CTW has also highlighted Walgreen's apparent violations of Regulation FD.

The takeover also returns Boots, now part of a larger group, to the public market, seven years after being taken private by KKR. Funnily enough this was one of the first things I blogged a lot about, as there was quite a bit of discussion about the commitment of the new owners to properly funding the Boots pension scheme (an issue raised by unions on this side of the Atlantic).

GMB on Coalition tax on pension contributors

Read this, here. Coincidentally have just been involved in a discussion about this very issue. The govt seems to have united unions and employers against a very stupid idea.

GMB mythbuster on the LGPS

MYTHS EXPOSED

Inaccurate information and misleading statements about the Local Government Pension Scheme (LGPS) are rife in the media. This guide highlights the most prevalent and erroneous of these myths and sets out the realities of the LGPS.


MYTH: Workers in the private sector have to pay for the LGPS while local government workers reap the benefits

REALITY: Everyone pays for everyone else’s pension. Companies with occupational pension provision for their employees include pension costs when pricing their goods and services. All taxpayers pay for the cost of inadequate pension saving (increasingly prevalent in the private sector) through the tax and national insurance spent on increased take up of state benefits and demand on NHS and council care services.

MYTH: 25% of council tax is spent on the LGPS

REALITY: This misrepresentation deliberately ignores the fact that 75% of local authority income comes from sources other than council tax. The true figure as reflected by the Society of County Treasurers is around 5% (£65 a year for the average council taxpayer).

MYTH: LGPS costs are soaring and the scheme is unsustainable

REALITY: The cost of the LGPS to employers for service from April 2008 (2009 in Scotland and Northern Ireland) was reduced during the reforms to the scheme that included changed benefits and higher average member contributions. Member contributions on average increased by 0.5% and have continued to rise since, now approaching 0.7% above the old scheme’s member contribution rates. The introduction of cost sharing in the new scheme is designed to manage future funding volatility. Costs associated with service before the new scheme was introduced should have been funded by employers in the past. These costs cannot be reduced by changing the scheme for current or future members.

MYTH: The employer contribution rate in the LGPS is too high

REALITY: There is not one employer contribution rate in the LGPS. There are over 7,000 participating employers in the scheme and each has their contribution set by the private sector actuary employed by the relevant one of the 100 funds in Great Britain. Current employer contribution rates range from 14% to 25% with an average of 18%. Given the level of past underfunding that remains to be contributed by many employers to the scheme this is a reasonable level. At the 2010 valuation the level may change because the future service cost has dropped as a result of the 2008 reforms but the legacy of past underfunding by employers remains in many, although not all, funds.

MYTH: Local government pensions are paid directly by the taxpayer

REALITY: The LGPS, like all private sector defined benefit schemes, is a funded scheme with real investments in UK and overseas business and tangible assets such as property all generating returns to the 101 funds that make up the Local Government Pension Scheme in the UK. The taxpayer funds a proportion of the employer contribution to the funds through local and national taxation.

MYTH: The LGPS is only nominally funded

REALITY: The LGPS has more than £100bn in real assets: property, investments in UK and overseas businesses, cash and government bonds. Four out of the largest 20 pension funds in the UK measured by asset level are Local Government Pension Funds [Hewitt 2010]. Total income to the scheme exceeds expenditure by £4-5bn every year [CLG 2009], even in the current climate of poor economic performance. Even in the depths of the recession LGPS investments provided nearly £3 billion for the LGPS in England alone, accounting for 27% of that scheme's income. Another factor contributing to the ongoing viability of the scheme to this is the increase in member contributions. Yield from employees increased by 15% in the last year as a result of the new contribution rates in the 2008 Scheme [CLG 2009].

MYTH: Scheme members retire on gold-plated pensions, protected for life

REALITY: Around half of LGPS pensions in payment are below £3,000 a year [Audit Commission 2010]. The mean average pension is £4,033 with the average for women only £2,600 [CLG 2009]. As with any pension scheme member’s accrued rights, it was generally held that pensions already paid for were protected for life, however, the unilateral cut in the indexation of pensions from RPI to CPI has brought this into question for both public and private sector pensions. As a result of the Tory-Lib Dem budget LGPS members are likely to lose a quarter of the value of their pensions over the next 25 years pushing many more on to means tested benefits.

MYTH: High earners in the LGPS receive unreasonably high pensions

REALITY: In local government highly paid employees are in the same pension scheme as the workers near the minimum wage. In the private sector many company directors and senior managers set up their own exclusive defined benefit schemes on extremely generous terms while their employees have only a low value defined contribution scheme. The average accrued pension for a director in the private sector is £227,726pa, 56 times higher than the average LGPS pension [TUC PensionsWatch 2010]. Some members of the LGPS retire on very high pensions as a result of receiving very high salaries (236 local government employees earn more than £142,500pa), not as a result of an over-generous pension scheme.

MYTH: Local government workers have a job for life and better pay than everyone else

REALITY: The average length of membership in the pension scheme is only six years in stark contrast to the vision of a job for life. Existing jobs are often part time and low paid with minimal opportunity for overtime and other mechanisms common in the private sector to boost income. When comparing full time workers who are saving for retirement through an occupational pension scheme, public sector workers actually earn £22 per week less than their private sector comparators. The 'total reward figure', which is gross pay and employers' pension contributions, in the private sector is £666 and in the public sector is £644 per week [ONS 2010]. Local government pay is also low in the public sector context with two thirds of local government workers earning less than £21,000 a year.

MYTH: To make pensions fair public sector provision must be reduced to the level common in the private sector

REALITY: This would increase the number of older people forced to live in poverty which in turn will increase the cost to the taxpayer of state benefits, health and care services. It is never the right solution to inequality to stoop to the level of the lowest common denominator. In education the solution to problem of good schools and bad schools is not to worsen the good schools so all children are poorly educated. In pensions the solution is not to worsen the good schemes but to raise the standard of the inadequate schemes. In fact defined benefit pension provision in the private sector attracts a future service employer contribution of 15.6% [DWP Pension Trends] compared with less than 14% in the LGPS.

MYTH: LGPS benefits need to be cut or member contributions increased because of deficits in the funds

REALITY: The LGPS is estimated to be at least 75% funded with sufficient assets to pay all pensions due for the next 20 years without any further contributions [Audit Commission 2010]. Where deficits exist they relate to past service and underfunding by employers. One reason for current deficits is that LGPS funds were between 1990 and 1993 encouraged by the then Conservative government to fund only to 75% so the pension scheme could fund lower poll tax bills. Now deficits are measured against a 100% funding requirement, the cost of this historic underfunding is clear. Changes to benefits would only affect the future service cost which, as set out above, is already below the private sector average for defined benefit provision.

MYTH: The current economic situation means member contributions to the LGPS need to be increased

REALITY: Benefits already earned by members have to be paid, whatever changes are made to the scheme. There are no short term cost savings to be made from making radical benefit cuts. Increases to member contribution rates would not aid the Treasury’s finances unless the government introduced a specific tax on LGPS members (which would be contrary to their stated commitment to encourage pension saving). Instead any increase would be transferred into LGPS funds which have already been valued, without going through a valuation revision an increase in member contributions is unlikely to have any impact on employer contributions for at least three years.
Members are currently subject to a three year pay freeze, without the protection for the lowest earners that exists in other parts of the public sector. Some members of the LGPS earn only 37p an hour above the minimum wage and many lower earning potential LGPS members opt out of the scheme on grounds of affordability. This trend is particularly common among part time workers (the vast majority of whom are women), in Greater Manchester, one of the larger funds, only 10% of full time staff opt out of the LGPS compared with 30% of part time staff.

MYTH: LGPS members retire at 60 and get a pension for nothing

REALITY: The normal retirement age in the LGPS is 65 and has been for many years. Members of the scheme contribute between 5.5% and 7.5% of earnings depending on salary, averaging over 6.4% overall. This is more than double the amount the average member of a defined contribution scheme contributes.

MYTH: The new LGPS only affects new starters while existing members have their own preferential scheme

REALITY: Reforms to the LGPS affected all contributing scheme members, existing and new. The LGPS is not a two tier scheme, the LGPS 2008 is the scheme for any one of the two million people working in LGPS covered employment whether they started ten years ago, ten minutes ago or are due to start tomorrow. Existing members sacrificed benefits and increased their contributions in order to keep the scheme sustainable. The LGPS is the largest pension scheme in the country with more than 1.7m contributing members, 1m deferred members and a further 1m pensioner members.

GMB pensions Q&A

The latest communique from GMB pensions centreforward Naomi:

Well the sun is shining so what more do you want? Dignity in retirement? Any retirement at all? A decent England football performance? Sorry, none of this looks likely in the new world order. In this month’s laughter filled edition we have the cuts the government told us about, the cuts the government didn’t tell us about and the cuts the government haven’t even realised they’ve made.

THE CUTS THE AXEMEN TOLD US ABOUT
After agonising over the decision not to tax the rich through a dramatic increase in Capital Gains Tax, the unholy alliance took a quick swipe at public sector pensions just in case anyone thought the independent commission they’d set up a couple of days before was actually going to be allowed to do the job it was set up to do. Changing the indexation of public sector pensions from an RPI link to a CPI link is likely to save the government close to £1bn over the next few years (by save the government I really mean cost pensioners).
But don’t worry folks, if you can afford to delay taking your pension you won’t be forced to turn your retirement savings into a pension until your 77 (up from 75) a policy that’ll help the very rich avoid some inheritance tax which is after all the cornerstone of a progressive budget.
Finally, in case it slipped your notice, the Liberals have forgotten about all their opposition to a rapidly rising retirement age and are now proclaiming the wonder of a higher state pension age from the roof tops. So a state pension age of 66 in 2016 is on the cards as is ultimately a state pension age of 70. It’s just as well there are so many jobs around for everyone to do for those extra years…hang on, we’re looking at around a million job cuts and no-one making or buying anything for the next five years. Presumably everyone will become pundits, there never seems to be a shortage of those.

THE CUTS THEY DON’T THINK ANYONE WILL NOTICE
The earnings link for the basic state pension is back – let joy be unconstrained! Except of course that it isn’t. In April 2011 the basic state pension will go up by RPI as usual and there’s no mention of a guarantee that if earnings or 2.5% is more than RPI pensioners will get the higher amount. But don’t listen to me, I just read the Budget, I’m sure if Mr Osbourne says they’ve restored the earnings link then that’s what they’ve done (makes you wonder why he didn’t tell the number crunchers though…). When it does arrive in April 2012, the ‘triple guarantee’ will only guarantee a state pension increase which is the highest of 2.5%, average earnings and CPI. So while RPI is projected to increase to significantly more than CPI over the next few years, pensioners will once more be pinning their hopes on dramatic increases in average earnings (some hope) to get a decent increase.

Again the taxation of the highest earners is being agonised over, this time in the field of tax relief on pension contributions. The last government set about limiting the tax relief enjoyed by those at the top of the income scale (the top 1% of earners take 25% of the pension tax relief in the UK), obviously this doesn’t fit in with the current government’s definition of fairness so they’re going to ‘look at it again’.

THE CUTS THEY HAVEN’T NOTICED (OR FOR THE CYNICS AMONGST YOU, THE CUTS THEY SIMPLY DON’T BELIEVE ARE WORTH ACKNOWLEDGING)

Possessed with all the vision of a Uruguayan linesman it’s perhaps not surprising that the demolition government don’t acknowledge the long term cost (financial and social) that they are storing up for the British taxpayer.

Increased welfare spending – as increasing the state pension age in the absence of sufficient jobs and aggravated health inequalities mean more people on unemployment and other benefits and greater pressures on the NHS.

More pensioner poverty – the government claim that CPI is a more appropriate means of increasing benefits as it better reflects individuals’ spending, nothing to do with the fact that CPI is generally notably lower than RPI. I’m all for an appropriate index being used for pensions increases, the Daily Torygraph found out a couple of years ago that pensioners’ inflation was running at three times the standard RPI or CPI measure, perhaps the Chancellor would like to consider using that index instead (and yes I know I haven’t even mentioned the impact of the VAT increase).

Less pension saving – as a result of the Budget and other government announcements people will have less money to be able to save for their futures (is now a good time to mention the VAT increase?). Less saving means less money in the future to fund social care etc. again forcing reliance on local authority provided services. On top of this, the move towards worsening pension provision in the public sector will continue to undermine people’s confidence in saving. The coalition government has consistently promised public sector workers that their accrued rights would be protected, yet it is profoundly unclear from their announcement of the change in public sector schemes’ indexation that they’ve honoured that promise. This should sound alarm bells for workers in the private sector…

So that’s the bad news, now for the good news…oops, sorry, I’ve run out of space, well the sun’s still shining, will that do?

Union pensions stuff...

1. Latest issue of the TUC's member trustee newsletter here.
2. The GMB takes aim at the Higher Rate Taxpayers Alliance research on the LPGS.

GMB report on public sector pensions

This report (PDF) is bloody ace! Lots of very useful info in there, and a good antidote to some of the rubbish propagated by the Right.

Top 10 LGPS facts*

More from the GMB...

1. The LGPS is a funded scheme like private sector defined benefit schemes and unlike the other public sector pension schemes. Together the 101 LGPS funds hold more than £120billion in investments and assets, enough to pay benefits for over 20 years

2. The LGPS has a positive cash flow, with income from investments and contributions exceeding expenditure on benefits by £4-5billion every year

3. Members contribute an average of 6.4% to the scheme with higher earners paying proportionately more

4. The employer contribution rate for current service is 13.6%. In the private sector the comparable employer contribution average is 15.6%. Many employers are paying a high overall contribution to the scheme because of past underfunding and contribution holidays

5. The LGPS is collectively the biggest pension fund in the country and fourth largest in the world making it a major shareholder in business and the UK economy

6. Four million people are members of the LGPS in England & Wales either as active, contributing members, pensioners or deferred members

7. In April 2008 (2009 in Scotland and Northern Ireland) reformed schemes were launched covering all existing and new LGPS members that changed the benefit structure and increased average member contributions to the scheme from 5.8% to 6.4%

8. In the last year income from employee contributions to the scheme has increased by 15%

9. More than 7,000 employers participate in the LGPS, many of which are private sector companies providing local public services

10. Not gold-plated, the average pension in payment from the LGPS is around £4,000 a year, for women the average is £2,600

* - Bryn has rightly picked up on my misuse of the word 'factoids' in the headline, so I've changed it.

GMB defends the LGPS

The debate about pensions must not be allowed to become a race to the bottom says GMB
19 Jan 2010
GMB and other Local Government unions today published a list of ten key facts about the Local Government Pension Scheme (see notes to editors below). In doing this the three main local government unions are seeking to set the record straight about a pension scheme with over four million members and £120billion in assets.

The facts are that the new LGPS, introduced in April 2008 for all the schemes 1.7m contributing members, was agreed by employers, unions and government after several years’ informed discussion. All stakeholders participating in that debate accepted the new scheme as a sustainable and viable means of pension provision in local government for the long term.

In exchange for increased member contributions and benefit reform, employers agreed to a scheme requiring councils and other LGPS employers to contribute on average 13.6% of members’ pay year on year. The income to the scheme from members since the introduction of the new structure has increased by 15%. The average employee contribution to the scheme is now 6.4% (higher than the UK average of 4.9%). In addition the LGPS was at the forefront of introducing higher contribution rates for higher earners, a concept now being proposed by government across the public sector.

The current LGPS is not the cause of increases in Council Tax or cuts in local services. In fact money equivalent to less than 6% of Council Tax revenue goes towards the LGPS, about £70.50 a year for an average Council Tax paying household in England. The numbers being peddled by those opposed to quality pension provision in the UK are dangerously misleading for a debate that should be considered not a forum for shallow point scoring.

Of that contribution it is the funding owed for past service that is often the greater part. Past underfunding by employers has meant that insufficient funds have been put aside for future pensioners. However, as a funded scheme, unlike the others in the public sector, the LGPS has over £120bn in assets, a figure sufficient to pay benefits for more than 20 years without any additional contributions being made. In addition the LGPS receives £4-5bn more in income than it spends in benefits every year, ensuring its enduring viability.

Even in the current economic climate the LGPS received nearly £3bn in income from its investments in 2008-9. The scheme is a major shareholder in British businesses, property and regeneration. This is on top of the contribution it makes to the income of more than one million current pensioners many of whom would be entirely reliant on taxpayer financed state benefits if it wasn’t for the Local Government Pension Scheme. The average pension of £4,000 a year (£2,600 for women) does not lead to a gold-plated retirement but it does mean members have some security in later life. The local government trade unions believe that the drive to the bottom approach to pension provision being led by the Conservative and Liberals will lead to millions more pensioners suffering and significantly increased pressure on public services.

Heather Wakefield, National Secretary for Unison said, “The cost to the taxpayer of abolishing the LGPS would be high. If our members did not pay into the scheme, the taxpayer would have to foot the bill through state pensions. The private sector has shown itself happy to use taxpayers’ money to cover up its mistakes and poor decisions. They should stop talking about what does not concern them and put their own house in order. Our members – almost three quarters of them women – work hard to provide public services on low pay and have sensibly decided to contribute to a safe and well-funded scheme. Two thirds of them earn less than £18,000 a year, so their pensions can hardly be gold plated. The scheme must continue”.

Brian Strutton, National Secretary for GMB said, “Let’s be clear, the debate about pensions must not be allowed to become a race to the bottom. The private sector must stop cheapening their workers’ pensions or we’ll have future generations of pension paupers relying on state benefits. Let’s also stand up for the LGPS which is affordable and sustainable for the long term to provide future pensions for some of the lowest paid workers around; workers who will fight to protect their pensions.”

Peter Allenson, National Officer for Unite said, “The LGPS is clearly sustainable given these details brought together for the Trade Unions who are determined that the myths that some are peddling should be exposed as the scare mongering they clearly are.

The LGPS is not gold plated but actually through its investments and benefits bring real value to Local Communities.

Everyone should bear in mind that the scheme was reformed in 2008 with some benefit changes and increases for employees in their contributions with the Government and employers being party to the new scheme.”

Union reaction to the PBR

There's a load on Touchstone, Nigel's post on pensions is useful.

GMB reaction here, Unite here, Unison here.

Union pensions stuff

1. The TUC has produced a rather useful response to some of the guff talked about public sector pensions. You can download it here.

2. GMB pensions supremo Naomi has issued the latest communique from the Worple Road command bunker. Full text below:


Sun hats and waterproofs at the ready and welcome to the summer edition of the Pensions Q&A. A little pension based sunshine in an otherwise grim world. This month some thoughts on what to do when you reach 65, presuming you don’t have the Latin to become a judge.

WHAT TO DO WHEN YOU’RE 65

1. Retire
Well it’s an idea. Not necessarily possible if your pension proves itself to be insufficient to fund even the most frugal of existences. You may of course have no choice in the matter. At the moment with six months notice your employer can say “Happy 65th birthday, don’t come into work again” – but this could be changing, see below…
At retirement of course you will be expecting your employers (old and new) and the state to throw money at you so you can enjoy the fruits of your labours. When you wake up you’ll realise there are a bunch of financial decisions to be made and which yacht you’re going to buy isn’t one of them. If you have a defined benefit pension (either from the company you’re retiring from or an earlier job) you will have a statement saying how much annual pension you’ll receive, whether you’ll get any cash automatically and if you can get more cash by trading some of that annual pension. If you have a defined contribution scheme you may need to buy an annuity (anorak word for pension). Either you’ll be pointed towards one or be able to choose from all the products those lovely insurance companies have to offer. Usually good to shop around when in this situation, you wouldn’t get a mortgage from the first bank you find on the high street, treat your pension the same way. You’ll need to decide what sort of pension you want, one with survivor benefits if you die, one that keeps pace with inflation? These will reduce the annual amount of pension at the outset but in the long term might well be worth it – your choice.
If you’ve got a full national insurance record, the government will pay out £95.25 a week to you. If you’re on a low income you should also claim Pension Credit, your taxes pay for it, if you qualify you should claim it. Too many people don’t (two million at the last count).

2. Work
If you’re a creature of habit and don’t see any reason to stop setting the alarm clock each day you may want to carry on working. There may not be much option if your watered down defined contribution pension hasn’t built up enough money to buy a decent pension or your defined benefit scheme has been so diluted that decades of saving has resulted in just enough cash to stop you qualifying for Pension Credit.
Fortunately, and not before time, the government has realised that having a default retirement age, that is an age at which you can be forcibly ‘retired’ (or sacked in normal language) isn’t such a good idea. They’ve announced that the review (removal) of the default retirement age will happen next year instead of in 2011. The government’s stated reason for this is the current economic climate, seemingly the catch-all justification for anything these days. Clearly removing it because that’s the right thing to do completely escaped them as a course of action.
GMB has been arguing for its removal since it was created in 2006 (the default retirement age I mean, not the union – 1889 since you ask). A two-tier workforce based on age is as bad for the economy and society as one based on gender or race etc. The default retirement age has allowed employers to offer worse terms and conditions to older workers, to dismiss older workers and to refuse to hire older workers. The sooner it goes the better.

3. Emigrate
Denmark apparently has the most content population, they also have a basic state pension of £139 a week which probably helps. Before you all make a dash for the land of beer and bacon I should warn you that you have to live in Denmark for 40 years to qualify (there’s always a catch).

AND FINALLY…
Before you get to 65, perhaps it’s worth thinking about where you’re spending your money today. One of the more suspicious/interesting surveys in recent times examined the amount people save for their pension compared with the amount they spend having affairs. Apparently, and the mind boggles how they worked this out, your average unfaithful partner spends £291 a month on their affair but puts only £59 a month into their pension. Of course if their expression of wish form isn’t up to date, the spouse/civil partner could at least be in line for some death benefits…

So there you have it, more amazing information and news on the pensions page of GMB’s website: www.gmb.org.uk/pensions

GMB Pensions Q&A

The latest communique from GMB pensions czarina Naomi's Wimbledon command bunker...!

Welcome to the May edition of the Pensions Q&A, today we have some comments on the Budget and a pilot of a new section of the Q&A called ‘fascinating facts’ (please note this title is in no way intended to suggest the facts included will be fascinating). So settle back and I’ll get started. You should be aware also that my expenses claim for producing this month’s Q&A is on its way to GMB expenses HQ in my new hovercraft kindly donated by an MP who said it clashed with the helicopter the taxpayer also bought for him.

BUDGET - Tax Relief
The biggest story for hard pressed commentators was apparently the end of every defined benefit pension scheme in the country as a result of less than 350,000 people getting less tax back than they have become accustomed to. The 350,000 are those earning over £150,000 a year, the sort who can afford to use the tax relief they get on their pension contributions to line their moats.

Tax relief on pension contributions for individuals is assessed on the basis of the highest rate of tax paid. So if you earn a penny over the higher rate tax band you get 40% tax relief on all your pension contributions – rather neat for higher earners you might say. Most people get 20% of their contributions refunded into their pensions, all the budget does is say that in time (apparently this takes years to do) those earning over £180,000 (did I mention it was tapered as well) will receive 20% tax relief too instead of 50%.

This is significant for those affected certainly, but in my view is the most ridiculous reason yet for accusing the government of killing pension schemes (although the presentation of this award will be deferred until the General Election, I have faith that some Tory or Lib Dem out there will do better).

BUDGET - Home Responsibilities Protection
A lesser reported story, although one that covers many more people, albeit not of moat owning class, is the extension of HRP to those of working age who care for children under 12 or for a sick or disabled person for more than 20 hours a week. This will enable more people who save the taxpayer millions by undertaking this unpaid work to qualify for a full state pension (a massive £95.25 a week).

HRP as you’ll know having read the GMB guide on the website, is a means by which the number of years of national insurance contributions you need to qualify for a full state pension (currently 44 for those with a state pension age of 65 and 39 for those who can receive theirs at 60 – government has previously announced that this will be reduced to 30 years) is reduced.

BUDGET - Pension Credit Savings Disregard
Another change announced in the budget, one fully in line with GMB policy for once, is the increase in the amount of savings pensioners can have before their Pension Credit is reduced. Currently this is £6,000 but from November this will be £10,000. This is a move that could actually really encourage people to save, a marked contrast to the tax relief system discussed above.

BUDGET - State Pension Indexation
Before everyone gets the champagne out, no the government hasn’t restored the earnings link or followed GMB policy of increasing the state pension each year by the higher of average earnings or RPI. It has said though that even if RPI is low in September (it currently stands at -0.4%) the state pension will increase by at least 2.5% in 2010 (taking it to nearly £98 a week). Not great but better than the spectre of ‘Pension Recovery Tsars’ visiting every pensioner in the land and demanding 38p from them.

FASCINATING FACTS

In September last year the leader of the Lib Dems, Nick Clegg when asked how much the state pension was in the UK answered ‘about £30 a week’ (real answer at the time, over £90). Despite this the Lib Dems have no noticeable proposals for a cash injection to the state pension.

Fred Goodwin, the former RBS exec and fully paid up member of the moat owning class, gets an annual pension of £703,000 – enough to pay out a state pension to 142 people or a LGPS pension to 177 local government workers.

Including Pension Credit, state pension provision is worth about £130 per week, the official poverty line is £158 a week, or 0.01 of a Goodwin pension.

So there you have it, more amazing information and news on the pensions page of GMB’s website: www.gmb.org.uk/pensions

GMB pensions myth-buster

GMB pensions supremo (!) Naomi has produced this rather good list of myths about pension reform.

Myth 1: The world is ending and we’re all doomed
It is undeniably difficult to hold on to a decent occupational pension scheme when redundancies are occurring every ten minutes with other cut backs eating away at overtime, pay deals etc. However, companies who decide to hit the nuclear button when it comes to their remaining defined benefit pension schemes aren’t going to solve all their financial problems overnight by destroying workers’ retirement incomes. All pension funds, defined benefit or defined contribution, are reliant on investment returns (generally this means shares). At the moment share prices are extremely low but not even the worst pessimist thinks this will last for ever and when the recovery does happen, many of the problems will abate. Investment returns and dividends go up and down, the trick, obviously, is to be canny enough with the investments to make a profit and profits can be generated even with a stock market that appears to be in freefall.
The alternative is to invest entirely in predictable things like bonds and cash. The problem with that is the likelihood of generating a profit out of these sufficient to match the increase in living costs and the cost of buying an annuity is slim. That’s why pensions should and do have a mixture of safe and riskier investments to generate higher returns. As an individual gets closer to retiring, their pension pot should move more into safe investments. Those of you in default or lifestyled defined contribution arrangements should find this happening automatically. This means that the nose dive in share values should affect you less than the press would lead you to believe.

Myth 2: The pensions industry is an innocent victim of economic circumstance
Given some of the commentary, you would be forgiven for thinking that no one involved in running pension schemes had any role to play in the current problems. So investment managers aren’t responsible for the performance of investments they choose, actuaries aren’t responsible for the assumptions they make about the cost of paying out pensions and no one is responsible for scrutinising fund activities. If they’re all so innocent it does rather make you wonder what it is they do to justify their rather significant salaries.
In fact the culpability of the pension industry goes further than the unlucky or ill-judged investment strategies of individual pension schemes. Among the biggest shareholders in banks and therefore those with the greatest opportunity to block senior executives’ remuneration packages (and pension arrangements) are pension funds – your pension funds. Whether you are in the LGPS, a private sector defined benefit scheme or a money purchase/defined contribution scheme, the money you contribute and that contributed by your employer is invested and I would bet a banker’s pension on it being a fact that a proportion of that money is or was invested in UK banks.

Myth 3: Immediate changes to the law are needed to save final salary pensions
Final salary and other defined benefit schemes need more ‘quick fix’ reform ideas like Fred Goodwin needs a Pension Credit application form. Almost without exception, any proposal to make schemes more attractive to employers means making it less valuable for members. The catalogue of changes that have been pushed through including reducing indexation and allowing employers to reduce benefits and walk away from good quality schemes have only succeeded in reducing the amount workers have saved for retirement, no one can point to any employer that has held on to a scheme because of these changes. Pensions are a long term concept; the objective is for schemes to have a lifetime spanning many, many decades. Crisis management is not only ineffectual in the pensions world, it’s counter productive.

Myth 4: The Local Government Pension Scheme is unaffordable and will cause a massive increase in Council Tax
As I may have mentioned last time the LGPS is not unaffordable. Like all schemes the general fall in investment returns has an effect on the funding level of the scheme’s 100 funds. However, unlike some private sector scheme sponsors, even the worst doom and gloom merchants don’t believe that local government is in danger of going financially bankrupt anytime soon. The deficits being decried from broadcasting studios around the country are based on a view that funds should be 100% funded. Well that’s a nice idea but not really the be all and end all. It’s not as if all the four million scheme members are going to demand all their benefits tomorrow.
Properly managed there is no need for councillors (the people responsible for LGPS funds) to add excessively to Council Tax because of the LGPS. The 100% is a medium term target not an immediate necessity. Most councils should appreciate this, the Tory government in the late 1980s set a target of 75% funding in order to keep the Poll Tax down. Many would argue that has more to do with the current deficit than stock market problems but it does indicate that the world doesn’t end if the LGPS isn’t always 100% funded.

Myth 5: No one can afford occupational pensions at the moment; the money should be spent elsewhere
There are a number of understandable reasons why some individuals and companies decide not to spend money on pensions (the need to pay off debt, genuine financial precariousness of a company). However, these circumstances are rare and in many cases are temporary. The truth of the matter is that we, as individuals and as a nation, can’t afford NOT to have occupational pensions. State pension benefits are already inadequate and with an ever increasing number of people claiming (the ageing population issue) the pressure on the taxpayer will increase. Oh and there won’t be as many taxpayers in the future (for the same reason) even with people working well into their late 60s and beyond so the pressure will be even worse. The extra pressure on the NHS and local authority care services wont help the strain on the public purse either (see the last Q&A for more on this point).

That’s it from me, usual wave in the direction of the website… www.gmb.org.uk/pensions

Odds and ends

Some union reaction to yesterday's initiatives in respect of the banks.

TUC says:

'The Government is absolutely right to take further action to bail out the banks. The alternative would be not just a prolonged recession, but slump.

'But ministers must also realise that there will be public anger that even more tax payers money has had to be put into the banking system, particularly among those who face losing their jobs or homes because of the irresponsible policies pursued by the banks.

'Fighting recession must now take priority, but voters deserve answers to such simple questions as to why banks have such big black holes in their accounts and where the money went. There needs to be a public inquiry into the behaviour of the banks, their advisers and their auditors.'

GMB says:

Paul Kenny, GMB General Secretary commenting on the latest bail out of the UK banks said, “I do not think that the politicians fully comprehend the depth of anger felt by the public at the irresponsible behaviour by the top directors of the UK banks which has necessitated this multi billion bail out. What GMB members want to know is when will prominent individuals like Bob Diamond at Barclays, who was paid £21 million last year, be sacked.

The lesson has to be learned that banks are just another public utility that the economy requires to function effectively. Like all the other public utilities they need to be under strict control of the state and be run for the benefit of UK citizens. We need them run by managers who know what they are doing and we need to clear out the irresponsible gamblers that brought about the bankers recession.”

And John Gray reports on a talk by Graham Turner, whose book I blogged briefly about here.

Bits and bobs

1. More on Madoff. UKIP blogger Tim Worstall argues that this is not really a hedge fund issue, which is a valid point even if his supporting evidence (a very short post by Brad Delong) isn't up to much. Richard Murphy disagrees.

Meanwhile David Aaronovitch wades in:

By last week I was ready for Madoff. I'd read J.K. Galbraith's reissued 1950s classic The Great Crash 1929 and taken delivery of his point that, in boom times, the rate of embezzlement grows because the promised rewards (Nicola Horlick, please note) don't seem as absurd as they actually are, and the rate of discovery falls off.

There is, as Galbraith noted, a strange period between commission and revelation, when the embezzler is richer yet the victim feels no poorer, so that, in this time, there is “a net increase in psychic wealth”. It's often only when depression knocks and money gets tight that Wile E. Coyote realises that he has run out of road and sees the abyss beneath him.

2. More on public sector pensions. GMB and TUC responses to the CBI call for a review.

3. Foot-in-mouth disease hits Tory blogger.

In defence of public sector pensions

Naomi, the GMB's pensions supremo(!), has produced this rather good list of points of why public sector pensions do not eat babies....

Public Sector Pensions – The Source of All Known Ills

“Oh no they’re not” I hear at least half of you cry as everyone gets ready for panto season. You’d be right of course, but in light of the hideously one-sided press coverage of the issue here are ten facts you won’t have read about in the press:

1. Public sector pensions potentially keep 12million people from reliance on state benefits in retirement.
2. Public sector pension schemes, in particular the funded Local Government Pension Scheme, generate billions of pounds worth of investment in the UK economy.
3. Public sector pension schemes encourage retirement saving among 5.75m public sector workers – 85% of public sector workers are members of a pension scheme (compared with 40% in the private sector).
4. Lack of retirement saving in the private sector will lead to more poverty and significant pressure on state benefits in the future.
5. Greater poverty in retirement resulting from inadequate company pension provision in the private sector will lead to greater pressures on the NHS and local care services.
6. All workers pay for everyone’s retirement income. The price of goods and services includes the cost of private sector pension provision, just like tax levels include the cost of public sector pension provision.
7. State benefits are funded by national insurance and taxation paid by everyone and used more by those with lower incomes e.g. those with inadequate pension savings due to poor private sector provision.
8. Public sector pensions account for about 20% of public sector workers’ remuneration packages.
9. Public sector pension schemes are good quality and rightly so, the country needs private sector schemes to be as good. Lower pensions for all means poverty in old age for all.
10. ‘Apartheid’ was the official policy of racial segregation formerly practiced in the South Africa, involving political, legal, and economic discrimination against non-whites; it is not an appropriate description of occupational pension provision.

A few bits and pieces

I meant to plug the GMB's struggle with OFGEM much earlier!

Shuggy has a very sensible post about the left & the crisis.

There's an interesting paper right at the bottom of this rant on the TPA blog about the superior returns available from 'sin' stocks.

The Grauniad now seems to think the FSA WON'T be tackling bank bonuses. Seems a bit odd given earlier comments.

And the Network for Sustainable Financial Markets is carrying out a survey of views on the crisis.