Connected Research

Union policy research in the 21st century

Archive for August 2009

Sunset…

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… No, not on the blog permanently, just for the next couple of weeks…

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Written by Calvin

19/08/2009 at 8:21 pm

Posted in Uncategorized

DC pots regain September 2008 value

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Aon Consulting has produced an assessment of the total asset value of UK workers’ DC pension accounts as at the end of July. This shows that the total value of UK defined contribution pension pots had risen at the end of July to a figure of £451bn – fractionally higher than the £450bn that they were in September 2008 when the existing credit crunch turned into something rather nastier.

The sum is also considerably higher than the £344bn which was the comparable value for March, with the recent increase in performance owing much to rises in the stock market over the last few months.

The rise is very welcome but there are four, perhaps rather obvious, things to point out:

– this does not mean that the recession is over

– DC schemes are, evidently, incredibly volatile vehicles for pensions saving. Someone cashing in their pension in March 2009 would have a much lower pension than one doing so in July (although, in truth, why – except in cases of absolute personal necessity – would you have chosen to cash in your pension in March?) At the same time, we should remember that DC-based pension funds are a lot less of a rollercoaster ride than such figures apparently indicate: funds which do experience such volatility are those which remain invested in equities right up to the point of being cashed in, whereas most advisers would advise switching to less risky funds than equities-based ones in the years before retirement expressly to avoid the problems of stock market crashes. So, the lesson is clear that DC pensions investments need to be regularly reviewed – and not only when lifestyle changes are imminent. Access to clear, affordable advice is paramount.

– pension funds are very exposed to short-term fluctuations and it is easy to base considerations on these when we need, in contrast, to remain focused on them as long-term investments. A rise in the total assets in DC pots of 31% in the four months since March is evidence of that. This is also something worth bearing in mind should the stock market fall back in the next period, as many are expecting. The lesson is the same for employers with defined benefit schemes, many of which self-evidently ought to have seen similar returns from their equities-based investments since March.

–  the re-gaining of the pre-recession asset value for DC pots is clearly a landmark. Of course, this represents ten months in which, ultimately, pension pots have trod water rather than achieving growth – but, given the depth of the recession, this actually represents something of an achievement, at least for people in mid-career. Nevertheless, people retiring and cashing in their DC pots in the last ten months would evidently have suffered from lower pensions (and will evidently continue to do so for the rest of their time in retirement).

At the same time, the model of people ending their jobs one day and drawing their pensions the next is becoming increasingly outmoded and, in the future, workers may be better placed, at least in normal times, to time their pensions and work options better, not least once the review of the default retirement age has concluded that the default age (65) should be swept away. In recession-hit times, with companies going bankrupt and workers losing their jobs in the ones that remain, or in ones that insist on using performance management systems to manage people’s exits from its labour force, that’s much more difficult to achieve – and it will remain so even after a recession until employment comes down and workers in their 50s, for example, are able to find employment.

One of the lessons of this recession is that workers increasingly located in DC schemes are going to need better protections at economically vulnerable times when faced with job loss in the period before retirement. The recession clearly indicates the value of savings outside pension schemes – workers made redundant in March might have been able to rely on other savings to tide them over until, for example, July. But, for others, perhaps some thought needs to be given to establishing some kind of government-backed bridging scheme for workers made redundant and who need to be tided over until their pension pots have regained some semblance of normality.

Written by Calvin

19/08/2009 at 11:42 am

Broadband levy to be dumped?

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Today’s Guardian is reporting that Stephen Timms, effectively the minister for Digital Britain, is to abandon plans for the 50p/month levy on phone lines designed to assist with the roll-out of fast broadband connections beyond where the market would provide.

The report describes ministers as cavilling over the levy partly due to electoral considerations and partly as a result of parliamentary conventions requiring opposition support for measures in a pre-election budget, which would be required since the levy is a fiscal measure. On the grounds that opposition support is not forthcoming, the levy would not make it into a pre-election budget and may, therefore, not be implemented at all.

Stories on Timms’s appointment suggested that his role would be to push through the levy – apparently, these were either incorrect or Timms has quickly abandoned the notion. The levy was always controversial, with some criticising its regressive nature and its ‘impractical politics’ (see further down this blog), although Connect supported it on the basis of the wider policy aims it would help to achieve.

The levy, suggested in the final Digital Britain report, was thought of as essential if Britain was not to be further divided between those with fast broadband connections, i.e. those in large, urban areas where competition would be likely to deliver a multitude of connection offers, and those without, i.e. those in areas where delivering high-speed connections was, for the want of a better word, ‘uneconomic’.

If the levy is indeed to be abandoned, and this may either be just one of those kite-flying stories that appear from time to time, or else the product of the need to fill newspaper pages in a very slow August, then Timms needs to say what will replace it. The public policy goal behind the levy – seeking to deliver high-speed broadband on a cohesive, nations-wide basis for all which does not disadvantage on the basis of choice of locality – remains absolutely spot-on.

Written by Calvin

18/08/2009 at 10:43 am

Posted in Communications policy

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Compass calls for high pay commission

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Pressure group Compass has called for the establishment of a high pay commission to curb excessive pay amongst ‘masters of the universe’ and to assist in the establishment of a ‘fairer, more stable and sustainable economy for the future.’

Compass’s statement, led by Brendan Barber of the TUC, Jon Cruddas (Labour MP for Dagenham) and Vince Cable (Liberal Democrat Shadow Chancellor) and supported by 97 other signatories encompassing Labour loyalists alongside more radical voices, has also appeared as a Letter to the Editor in today’s edition of The Guardian. Here, the authors of the Letter call on the government to take ‘decisive action’ on the ‘excessive levels of banking and executive remuneration packages’ which have had such a ‘damaging and corrosive effect on the real economy and wider society’. Compass is calling on members of the public to add their signatures, which you can do here.

Against the background of the successsful establishment of the Low Pay Commission in 1997, a high pay commission would be charged with the review of executive pay and coming up with proposals to restrict excessive remuneration, such as maximum wage ratios (for which Connected Research has called for in the past), and the taxation of bonuses.

No doubt warned of the initiative, Alistair Darling yesterday referred (amongst other things) in an interview with the Sunday Times to the possibility of changing the law to ‘toughen things up’ on executive bonuses, with a law likely to be forthcoming in the autumn covering the entire banking system designed to ensure that bonuses are paid on the basis of sound overall performance rather than on taking risks which jeopardise institutions (and economies). The Treasury had already dismissed last week’s plans from the Financial Services Authority for a remuneration code of practice as not going far enough.

The arguments are undeniable, not just from the perspective of the financial-led economic crisis but also from that of establishing a fairer society. There is a need to ensure that levels of executive remuneration, which have rocketed compared to that of the ordinary employee, are controlled both from the point of view of ensuring that there is no reward for failure while also delivering overall remuneration within an organisation which fits within the principle of ‘felt fair pay’. What we have currently is the reverse and a high pay commission to address that (while looking at the overall level of executive remuneration, not just basic pay) is an essential ingredient in identifying what can be done about it. People are right to be increasingly angry at excess in the financial sector and if the commission can build on that, while opening people’s eyes to executive excess not being limited to financial services, it will have done a good job.

The government may well turn out not to be sympathetic to the notion of a high pay commission (or it may surprise us all) – but that doesn’t change the need for one to be established, or to the job it could do. That might be a question for the wider labour movement a little way down the line although a version with official status is clearly preferable.

[Edit 18 August: Alistair Darling has already rejected the notion, according to the BBC. That shouldn’t prevent continued lobbying activity aimed at changing his mind in the meantime, but proponents of social justice would do well also to consider in the slightly longer-term how a non-official version might best be secured.]

Written by Calvin

17/08/2009 at 12:58 pm

TUC to include racism vigil

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Preliminary plans for the programme for this year’s TUC have been announced and they include a silent vigil on racism.

Monday morning’s opening session of Congress will include debates on racism, in response to the motions submitted by a number of unions on the need to counter racism and to expose the violent extremism of the BNP, following which delegates will file out of the hall at noon for a silent vigil with the theme of ‘not in my name‘ – HOPE not Hate’s petition-based campaign to demonstrate that MEPs who are members of the BNP do not speak in Britain’s name (which over 90,000 people have now signed – have you?).

The vigil will be joined by trade unionists in the Liverpool area and leaders of local community organisations and will provide a public demonstration of trade unionists’ opposition to racism and our determination to stop the advance of the BNP, but is also intended to commemorate the victims of the slave trade.

Written by Calvin

14/08/2009 at 1:12 pm

PPF7800 Index – August update

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The Pensions Protection Fund has produced its August update of the aggregate pensions deficits of all defined benefit schemes covered by the PPF levy – a total of around 7,400 schemes.

The figures are based on data supplied in respect of s.179 of the 2004 Pensions Act. This requires every eligible scheme to undertake a Pension Protection Fund valuation to establish the level of the scheme’s assets and liabilities in order to set the amount of the levy which is payable to the Fund. The valuation figures supplied are in respect of the 2008-09 levy, so are up-to-date. They are not an authoritative statement of the total liabilities of pension funds, since the valuation is geared only towards what would need to be paid to an insurance company to take on PPF levels of compensation, but do provide an interesting picture as regards the trends over time in the funding of pension schemes and the contribution to the overall level of volatility played by short-term variations in the stock market.

The August update indicates that the aggregate deficit of pension schemes as at the end of July (the monthly figures are stand-alone snapshot ones and are not cumulative) stood at just over £158bn. This represents a considerable improvement on the June figure, where the deficit stood at a fraction over £200bn. The deficit is still sizable – but the quantity of the movement in one month (an improvement of 21% in the month) is also well worth noticing.

Some 85% of defined benefit pension schemes are currently in deficit, a small improvement on the June figure.

The total assets under the command of pension schemes now stands at some £798.3bn (a 3.5% improvement in the month, owing largely to improvements in share prices) compared to a s.179-based assessment of liabilities, which stands at £956.4bn (a 1.5% decrease, owing largely to higher yields on gilts). Over the year to July, assets have fallen by 1.6% while liabilities on this basis have expanded by 15.2%.

A look at the shifting nature of the aggregate picture of pension schemes assets and liabilities over the last three years looks as follows:

PPF7800 August

The current situation looks bad. And it is. But, the overall position is no longer growing worse; the position over the last month represents a substantial improvement; and the key message to note is the volatility of schemes’ funding positions. Don’t panic remains the watchword when it comes to the funding of pension schemes and you can take your inspiration there either from Corporal Jones or Douglas Adams…

Written by Calvin

13/08/2009 at 2:19 pm

Posted in Pensions

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Barclays re-thinking pension plans?

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Media reports indicate that Barclays, which is engaged on a formal consultation process concerning the closure of its defined benefit pension scheme to existing members, may be having something of a re-think.

The reports come from a shareholder meeting held yesterday, at which Marcus Agius, Barclays Group chair, responded to a question from a shareholder about the decision by admitting that the company was looking at ‘what enhancements we can make’ to the offer being made to members of the final-salary scheme – presumably, the ‘offer’ here refers to existing members of the scheme being offered membership instead of the hybrid cash balance scheme that the bank already offers new staff.

This is all very far from thinking that the company is on the brink of announcing a reversal of the closure decision (though – who knows?). ‘Enhancements’ can, of course, mean a variety of things. But it does represent, at least, something of a chink of light. The company has clearly been disturbed by the organisation of Barclays staff in opposition to the closure – there was a rowdy demonstration at yesterday’s meeting held by members of Unite, which is fighting the closure decision on behalf of its members and which has threatened an industrial action ballot after 92% of members in a consultative ballot said they wanted one – and there is thus good reason to think that the company’s position may be shifting.

The formal consultation period ends today. The period in the next few weeks is thus crucial as Barclays, which on Monday announced an 8% rise in pre-tax profits to a figure of £3bn for the first six months of the year – sifts through the no doubt weighty responses it has received and liaises further with the scheme trustees, who occupy a crucial role in any decision to change pension arrangements. Keeping up the pressure will be essential in terms of securing further – and better – ‘enhancements’ that the company appears now to be considering and, indeed, in terms of securing the workers’ aims of ‘hands off our pensions‘.

Written by Calvin

07/08/2009 at 2:49 pm