The politics of pensions pervaded the air at the UK National Association of Pension Funds (NAPF) annual conference in Glasgow last month, with the message to the government emanating from the UK pensions community being ‘let us get on with the job in hand’.
The opening speech by NAPF chairman, Alan Pickering, lauded the link between pensions and the workplace as “not just yesterday’s success story… tomorrow’s too.”
And Pickering urged the government to keep it’s own agenda out of the occupational pensions arena. “In my early days, the refrain often ran ‘keep politics out of pensions’. This was a misplaced expectation. Politics and pensions are about the same thing – the allocation of scarce resources between conflicting priorities. A more realistic plea might have been ‘keep party politics out of pensions’.”
Pointing to the ‘layer upon layer’ of ‘counter-productive’ regulations introduced by successive governments, Pickering noted: “If the government wishes to switch the proportion of income that retired folk draw from state and private sources – 60% state to be converted into 60% private – simplicity is essential.”
He also called upon the government to ensure the tax regime for pensions is geared towards the saver, rather than skewed to encourage share saving options where people’s financial assets may not be adequately diversified.
“In a nutshell, when it comes to tax, pensions scheme money is people’s money. People’s money should not be taxed until those people have a chance to spend that money,” he commented.
Pickering’s closing plea was that UK politicians show themselves to be statesmen on the pensions question: “they jointly acknowledge the need for stability if employers and workpeople are to do the right thing when it comes to sacrificing spending power today to ensure that poverty and old age are no longer synonymous.”
The terrain was prepared then for Michael Portillo, shadow Chancellor of the Exchequer to show his statesman-like mettle before the conference. 1 to the politicians mould, however, Portillo laced his commentary with the party line. Noting the changes to advanced corporation tax (ACT), under the present government, which he said would cost pension funds £5bn (E00bn) a year, Portillo dubbed it: “The stealthiest, most underhand stealth tax of all.”
He then pointed to Britain’s ‘excellent’ record on pension reform during the 1980s and 1990s – the period of conservative governmental dominance. “In the 1980s and 1990s, the government greatly extended private provision, through personal pensions and occupational schemes in recognition of the increasing volatility and flexibility of the labour market.”
He then questioned the government’s ‘commitment’ to occupational schemes, citing figures showing that the number of schemes being set up in the UK had halved since 1997 from 6,000 a year to 3,000 in 1999.
On stakeholder pensions, he questioned the possibility of mis-selling: “Given that the charges are so low, making it difficult to provide advice, can we be sure that these pensions won’t be mis-sold, or in anyway mis-bought?”
It seems we may have some way to go before the politicans’ rhetoric on pensions points in the same direction.
Closer to home though, the more practical question for pension funds in the audience concerned the government’s response in relieving the UK gilt dearth of the last few years. Mike Williams, chief executive of the UK Debt Management Office, underscored the problem in figures: “The net gilt issuance has been negative in each of the last two years and is expected to be negative again, to the extent of £10bn in 2000-01.”
He noted that whereas in the last decade funds were taking up to 20% or less of issued gilts, in the last three years the figure had risen to 90%. The lack of gilt issuance, he said was a reflection of the cash surplus the government’s 1998-99 net cash requirement against a financing requirement of 7% as recently as 1993-94.
However, Williams pointed out that the government was responding to the bond shortage by concentrating supply at the long end of the market: “The government is committed to maintain a minimum flow of index-linked issuance of at least £2.5bn a year. In the last two years there has been a much stronger bias within total conventional issuance towards long-dated gilts. This will be repeated in 2000-01 when long-dated stocks are planned to account for £6.5bn of the gross gilt sales of £12.2bn.” Time, and the reappraisal of the MFR currently taking place in the UK, will tell whether this will be enough for pension funds.
David Hager of consultants Bacon & Woodrow, raised another urgent concern for UK schemes – the production of a statement of investment principles (SIP) before July 3 this year, concerning funds’ approaches to social, environmental and ethical considerations.
However, Hager encapsulated the minefield funds find themselves in, faced with the widespread debate, where: “discussions seem to expand the list of subjects under consideration.” This he said had resulted in inertia: “A two line statement in a statutory instrument has become a mountain which many have found difficult to climb and has often drawn attention away from more pressing issues.”
His final statement captured a sense of the difficulties ahead in adequately addressing the SIP, but appropriate, also, to the ‘engaged’ atmosphere of the whole NAPF conference.
“It would be great if we were a more caring society. Perhaps it is a little harder than just writing down we care.” Hugh Wheelan