23 comments on “Timmy elsewhere

  1. Or maybe it’s just socialists who’ve seen another pot to steal for their grand experiments. This time though the dog is crapping on his own doorstep; they want to steal from their own hard-working a not-very-well-paid staff. Revolting.
    It’s all so cute: force them to invest their pensions in your bonds, thereby rigging the market to reduce the yields. Maybe let them be tradeable, so the loss can crystallise nice and fast.
    This has the cold dead fingerprints of Colin Hines all over it. His friend and collaborator , our Ritchie, tells us they have met with pension funds lot’s of times. By contrast, when pressed by the excellent Noel Scoper, he showed real reluctance to appraoch unions to tell them what they should do with their members’ life savings – no shit!

  2. He has an interesting idea of de-risking.
    Aside from wanting to consentrate a large part of the portfolio locally (sound like it could run into problem similar to the Spanish cajas by getting strong arming into investing in local politians pet projects), the balance of equities and bonds should relate to the age profile of the people in the pension scheme.
    The maangement fee cap would be a problem. 0.02% (or 2bp) would only just cover custoday fees, transaction fees and a few other admin charges before you actually would pay the manager anything.
    You would struggle to run a passive investment on this let along an active one with a local segment.
    Not sure you would get any Fund Managers bidding for this mandate, even for the larger schemes.

  3. “they want to steal from their own hard-working a not-very-well-paid staff”: no, I think you’ll find they want to steal from all their staff.

  4. dearieme – “no, I think you’ll find they want to steal from all their staff.”

    After all, there aren’t enough hard-working, and not-very-well-paid staff to make it worth while. Colin and Bob in Accounts just aren’t that cash rich.

  5. Can I just say that I disagree with TW? I think this scheme is brilliant.

    The civil service is full of people who think they know better than us much less the markets. Local authorities especially so. The obvious solution is to let them put their money where their mouths are. Let them decide how their pensions should be invested. Put civil servants from the Local Authorities in charge of these investment decisions.

    We can sit back with some pop corn and a beer and enjoy the show.

  6. Smfs: shortterm that would be enjoyable but somehow “in the interests of fairness and social justice” the taxpayer will bail them out and no lessons learned.

  7. Ljh

    That might happen, probably will up to a point. However, I doubt very much that any group, any group at all will voluntarily sign up to something like this. People just do not put their money where there mouths are; that’s what mouths are for.

    Of course Colin Hines, Richard Murphy and the Couraegous State don’t do ‘voluntary’, so the point is moot anyway.

  8. Can just see it now, you have a gold plated pension scheme and the union demand that the existing agreements are met in full no matter how badly the pension fund pot is performing! Strike brothers and sisters!
    Reminds me of a company that was going downhill back in the 80s, they asked the staff to go on part weeks for a period of 3 months after which cashflow would be expected to be much better and back to normal for pay. Unions refused and insisted members receive full pay regardless.
    So the company went under, unable to pay its bills. The union officers for years afterwards continued to insist they were right to act as they did, despite it costing over a thousand people their jobs.

  9. The term ‘gold plated pensions’ is an interesting one. It is certainly usually applied to the Principle Civil Service Pension Scheme, but that is defintiely a defined benefit scheme and is a pay-as-you-go for the employer. I am assuming that the local authority schemes are defined contributions. If they’re not then the risks are borne by the employer anyway and then what is the point?

  10. Potential conflict of interest for scheme trustees (I’m guessing some will be union officials) if they are approving investment of pension scheme assets in projects which would benefit union members.

  11. Potential conflict of interest applies to other people, not union officials. Have met some who see the union as unable to do wrong because its the union!

  12. Agreed, but trustees have certain responsibilities under law and it would be interesting to see how it would play out if someone took exception to the investment strategy and took it to the regulator.

  13. @ Ironman
    Local government pensions are defined benefit (which they ought to be).
    The change from final salary to average salary for rights accrued from 2013 was accompanied by an increase in accrual rates to one-fortyninth of salary for every year of service, so 100% of average salary if you leave school at 16 and work until 65 or more than 90% if you start work as a graduate aged 21 and retire at 67; the description ‘gold-plated’ is not unreasonable.
    So the risk to LG employees is that of a Detroit-style bankruptcy.

  14. I always understood “gold plated” to refer to the government guarantee (either explicit or implicit) rather than the generosity (or otherwise) of the accrual.

  15. John7, Thanks

    So the employer taking the fund’s cash and issuing a bond is completely pointless, it has just deliberately chosen to go into deficit. Why don’t the Courageous Staters just say “we want local gov’t to start running bi deficits as well, with it all sitting in our pension fund”?

  16. Ironman, I think it’s stronger than that: the employer is simply not paying the pension contributions over. If the fund invests in bonds issued by the employer, then all the employer has done is give the fund an IOU.

    So Murphy is simply suggesting that local government runs an unfunded DB scheme. I’m not heavily into pensions, but I get the impression that unfunded DB schemes are not generally considered to be good things.

  17. Pellinor

    Yes, that is in effect what they are suggesting, if they realise they are talking about DB schemes. It’s a big ‘if’, however, as the language was all about these schemes combined being one of the largest in Europe with the amounts invested. So there is a good reason for thinking they believe they are talking about DC schemes.

    Either way, I wouldn’t want to be an employee of Birmingham Council at the moment, even if I was a redicalised Islamist teacher!

  18. The tabloid morons coined the phrase “gold-plated” pensions. Thus proving that even morons get it right without meaning to.

    Things “gold-plated” are cheap crap covered with a very thin veneer of something valuable. The phrase the idiots wanted would be “solid gold pensions” or the like.

    The average Civil Service pension is not that large and only threatens the economy because the scum of the state have tried to use the public sector as a means of dropping unemployment figures.

    The pensions of the Senior Civil service and the boss class of 50,000 odd managers–now they are solid gold indeed.

  19. On this, Tim is wrong.
    One big fund for all local authorities is a good idea – asset management has very good economies of scale (though 2 basis point fee suggested is nothing like enough to cover costs).
    And once you have a single big fund of UK-wide pensions, “local” investment is meaningless – it would mean a UK wide infrastructure, or smaller companies fund (or something like that). In the context of this being a part of a big fund, this would be a very sensible piece of asset allocation.

  20. @ GlenDorran
    I understood it to refer to the full inflation-linking that was not available to private-sector schemes (or only at the cost of losing their tax-breaks) who could not promise inflation-linked increases in excess of 5% pa – this was a *very* significant difference when inflation averaged over 13% pa in the mid- to late-70s which wiped out 35% of the value of the most generous private-sector pensions and worse-than-halved those without inflation-linking.
    That said, your point is quite valid – I was misapplying the term to emphasise the generosity of the new scheme.

  21. @john77

    Interesting, I wasn’t aware of those restrictions on inflation linkage and it makes your understanding of “gold plated” more apposite than mine.

    I suspect that both our views have now become lost to the wider tabloid version that MrEcks mentioned.

  22. @ GlenDorran
    The 5% limit has rarely been significant in your young life (or, at least since you qualified). It was a fairly big issue in the 1970s since it raised a question mark over the raison d’etre of final-salary schemes, but paled into insignificance compared to the impact of inflation on pensioners with no inflation-link at all.
    There is some justification for the tabloid outrage since the cost to the member of any public sector pension scheme was related to average salary while the benefit related to final salary so most of the subsidy went to those at the top of the slippery pole. The changes do not save all that much money (I forget the terms of the Civil service scheme but I do remember it is even more generous than the Local government scheme) but the subsidy is spread less unfairly.

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