This is going to cause an interesting problem, isn\’t it?

Mr Miliband is proposing a sweeping new legal duty on any financial service which manages savings, including pension funds and banks, to maximise the saver’s returns. Failure to do so would mean them breaking the law.

That\’s entirely the end of the corporate social responsibility movement then. Entirely screws over the ethical pension and investment funds. All those plans for Green Bonds go up in smoke.

For he\’s imposing a strict version of fiduciary duty on the pension funds. You are not allowed to consider anything else at all except the financial return to investors. If fags n\’booze provide the best returns, arms, raping Gaia through mining, then that\’s where you\’ve got to invest.

Bugger what anyone thinks about anything else: financial return is the only valid metric.

It\’s going to be very interesting indeed seeing what happens when people, including the Milipede, realise what\’s he\’s actually advocating.

11 comments on “This is going to cause an interesting problem, isn\’t it?

  1. Not really. He’ll just get the WGCE to define “maximise saver’s returns”.

    Think of all the karma you will earn when your savings are pissed away on local government vanity projects, green micro-generation subsidies and huge statues of Ritchie in every squat in the land.

    That’s a valuable ‘return’, to some people. Just not a financial one.

  2. Is that what he really said or just sloppy journalism? It could be that he is just advocating caps on charges from the way I read it. Which is still not a good policy.

  3. Maximising returns involves buying risky assets rather than gilt-edged stocks so the FSA will spend all its time chasing up complaints that the fund managers undertook a higher-risk strategy than the saver wanted. Also Labour will have to pay much higher interest rates on new borrowing since pension funds will not be able to purchase gilt-edged unless the yield matches that on a loan stock issued by a shaky property company.

  4. I’d go with SimonF’s suggestion of sloppy journalism. The proposal would ‘maximise’ the proportion of the return that goes back to the investor.

    Imo it’s not looking to force pension funds to find the biggest pie they can but to limit the size of slice pension funds take from whatever pie they buy.

  5. Presumably a tightly-drafted ethical investment fund would still be OK, because the managers would be constitutionally prevented from investing in certain shares.

    But anything else would have to be gung-ho out for profits at all costs, with no CSR nonsense.

    It’ll make an interesting division between fluffy green funds and red-clawed capitalist ones.

    (and even the fluffy funds would have to maximise profit within their investment restraints)

  6. What’s interesting here is we can see the coming influence of @RichardJMurphy, who as I have often stated is likely to be appointed Senior Economic Advisor after the 2015 Election victory. His primary narrative is that the pensions crisis in the Private Sector isn’t caused by the main issue -excessive taxation on income and the abolition of the Dividend Tax Credit which has crippled pension provision, but by the industry’s ‘excessive charges’.

    The upshot of that analysis is this policy, capping them at 1%- it’s as idiotic as almost anything else Murphy advocates,and seems to come straight from the pages of the ‘Courageous State’ (Check out Chapter 6- ‘Where only the State may venture)

  7. Charges shmarges (I think that is the phrase).
    My pension is managed by members of the pension scheme so managers have an incentive to perform as well as possible and costs are subject to “value for money” scrutiny. That hasn’t stopped it from falling into deficit despite having had a substantial surplus up to 1997.

  8. VP: you keep repeating this claim about Murphy’s future employment, but it continues to be plausible only in your fevered imagination.

  9. Paul B

    So you see nothing of Murphy’s influence here? The entire fictitious narrative as to why pensions in the private sector have under performed is lifted almost verbatim from his book.

  10. Hmm…. would this maximisation of return involve among other things investing in certain countries? Not us obviously as we have too low an interest rate. But Spain? Greece? Italy? or whomever?

  11. VP: I’ve not read Murphy’s book – I don’t know whether to admire or pity anyone who has.

    It’s quite true that many fund managers charge fees which are not justified by their performance. Since the ordinary investor has no way to tell which managers if any are worth paying higher fees for, their best strategy is to put their money in a low-churn, low-fee fund. It’s reasonable for the government to encourage this. And that remains the case even if Murphy agrees with it.

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