Richard Greensted reports from the UK’s National Association of Pension Funds conference in Birmingham
The annual conference of the UK’s National Association of Pension Funds (NAPF) had a distinctly green tinge to it - green because that is the colour of the government’s consultation paper, Partnership in Pensions, which has dominated recent debate in the pensions industry. Peter Murray, the outgoing NAPF chairman, summed up the mood of the conference in his introductory address. “Our view is that one major effect of the Green Paper will be to undermine occupational pension provision in the UK,” he warned.
But Murray was hopeful that the UK government was beginning to listen to the concerns raised by the industry. “I am more and more convinced,” he said, “that the government genuinely does not want to damage occupational pensions and is anxious to work with organisations such as NAPF to ensure its welfare reforms are introduced in a way which minimises the damage to them.”
William Hague, leader of the Conservative party and the Opposition, was considerably less generous about the government’s attitude towards pensions. Hague, who served as pensions minister in the last Conservative administration, said that “Britain’s funded pensions, and the hard-working savers who rely on them, face an unprecedented attack from this Government”. Citing the removal of ACT relief from pension funds, he stated: “Increasing the tax burden on pension funds shows that the government simply does not understand what makes Britain successful.”
His address was longer on rhetoric than it was on was on policy, and there was little in the well-delivered speech that was new to delegates. However, Hague did announce that he had asked Francis Maude, the shadow chancellor, to lead a comprehensive review of taxes on savings. “The taxation of savings needs to be reformed,” he said. “The tax system should reinforce what makes the economy successful, not undermine it.” This initiative was very warmly received by delegates.
Steve Mingle, group pensions director of Diageo, echoed the concerns of NAPF’s Murray over the concept of stakeholder pensions as set out in the Green Paper. “The majority of large employers have thus far retained their funded schemes, notwithstanding the increasingly unfavour-able conditions in which they operate,” Mingle said. “It is, however, likely that their continuing commitment to these schemes will be severely tested in the event of further adverse developments. Many of the responses to the Government’s Green Paper have identified that the introduction of stakeholder pensions - and the framework within which it is proposed they will operate - could produce such a threat.”
Delegates were therefore eager to hear what Alistair Darling, the secretary of state for social security, would have to say about the government’s plans for stakeholder pensions in the light of responses to the Green Paper. They were to be disappointed, however, judging by the response from Alan Pickering, the incoming NAPF chairman.
“In the light of an interview he gave in the FT two weeks before the conference,” Pickering said later, “a lot was expected from Alistair Darling, but our expectations were not fulfilled. He gave delegates the strong impression that he had a proper awareness of all the important questions, but it didn’t seem that he had any more knowledge of the answers than when he arrived at the Department of Social Security.”
Darling’s presentation, and his guarded comments during questions from the floor afterwards, left many delegates with the same impression.
But there was at least praise for the appointment of Tom Ross to chair an expert group, drawn from both the pensions industry and employers, to advise on the planned legislation.
Elsewhere, Alan Rubinstein, vice chairman of the NAPF Investment Committee, argued the case for active fund management, and also questioned whether the controversial new asset allocation model proposed by Bacon & Woodrow and BGI was practical. “First, there are definitional questions,” he said. “How do you define multinationals? By sales? By profits? Second, removing multinationals from local indices will lead to less diversification and increased volatility within those indices. Finally, it’s fairly clear that removing the multinationals from local indices will lead to a small/mid cap bias in the remaining index.
“I think we’re in danger of using the right approach to answer the wrong question.”
Michael Hughes of Baring Asset Management was also sceptical. Predicting that the degree of specific risk for investors will increase as corporate profitability becomes more concentrated, he said: “When designing global portfolios, this increase in specific risk needs to be taken into account. I do not believe that dividing the investment world into multinationals and country-specific stocks is necessarily the answer. However, changing the asset allocation structure could be. If ever there was a time to have a balanced portfolio, this is it.” Richard Greensted