ASH are making idiots of themselves again:

A new report by FairPensions and ASH (Action on Smoking and Health) has challenged the long held view that UK local authority pension funds can hold 'unethical' assets such as tobacco in order to fulfil a legal duty and  maximise investment returns

With tobacco sales declining for the first time in 2010 and savers continuing to express concerns over whether their money is invested 'ethically', the report claims to expose misconceptions surrounding investors' duty to have tobacco as part of their portfolio. 

The report is launched with figures showing that councils across Britain have at least £1.3bn of employee pension funds invested in tobacco.

Both organisations claim that the three most heard arguments in favour of schemes investing in tobacco can no longer be upheld.

One of the most heard arguments; that is a trustee's "legal duty to maximise financial return" and that a trustee "cannot give consideration to ethical issues", is dismissed by the report as being "somewhat simplistic".

"Although local authority pension funds are governed by different laws to other types of pensions, members of their pensions committees have similar fiduciary duties to pension fund trustees," says the report.

"The phrase 'duty to maximise return' does not appear in any UK statute or case law. Pension fund trustees have a fiduciary duty to invest 'in the best interests of members and beneficiaries'. This is based on the common law duty of loyalty, which exists to ensure that trustees avoid conflicts of interest and do not abuse their position to further their own ends. Trustees also have a duty to invest prudently."

The report also claims that the two other common justifications for the investment practice, (that trustees do not interfere with the day-to-day decisions of external investment fund managers and that tobacco is a low risk, high return investment) are no longer valid.

Now, I mostly hate smokers. I hate the way they smell, I hate the litter they make, and I hate how they're always in the fucking way the whole time, whether walking down the street or when entering or leaving buildings. I hate how they use stupid schoolboy arguments to rationalise their irrational habit. I really hate how they see themselves as funding the NHS single-handed, as if that excuses all their other sins.

However, smoking remains legal. Although I don't smoke myself, I have no qualms about investing in tobacco companies and making money from the addiction of smokers (I've made quite a bit of money in doing so). Yet I can see that some people do have a problem with it.

But when you sign up for a local authority pension, you forego any right to determine what equities your pension fund is invested in. Local authority pensions are defined benefit, ie they promise you what pension you'll get in retirement. If you want a fund to call your own, over which you can make investment decisions, then defined benefit pensions aren't for you. You'll be wanting a defined contribution pension plan instead, just like we private sector taxpayers have been enjoying for years.

You can't have it both ways. Either take your defined benefit pension and shut up, or move to a defined contribution pension scheme. ASH and FairPensions are trying to have their cake and eat it. They can get stuffed.

Filed under: Economics with tags ash, defined benefit, defined contribution, fairpensions, idiots, smoking
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What do we want? Pensions Justice! 

Public sector pensions are under attack.

Oh noes!

The government wants to make people pay more and work longer for a lot less. Despite hours of talks, ministers have yet to seriously negotiate.

Pensions Justice is a site run by the Trades Union Congress for public sector workers. Presumably it's hard luck if you're a unionised worker in the private sector, but yippee if you're an ununionised worker in the public sector.

By 'pensions justice' they appear to mean preserving the future accrual rights and contribution levels of current public sector workers, with the taxpayer funding any shortfall. And that means private sector workers, many of whom have defined contribution pensions, will end up having to pay extra tax just to keep public sector workers in the pension schemes to which they have become accustomed.

As we've mentioned here before, defined contribution pension schemes are under significant strain as a result of Gordon Brown's 1997 pension raid, increasing longevity, soggy equity markets and low interest rates. The upshot of these four pressures are that private sector workers are having to pay more and work longer for a lot less.

So where exactly is the justice in calling for public sector workers to be mollycoddled while private sector workers must fund the increased cost of their pensions as well as funding the increased cost of their own pensions? Where were the unions in 1997? Why didn't they complain then? Because it didn't affect their members? It makes their calls for 'justice' now look depressingly hollow.

Filed under: Current issues, Politics with tags defined benefit, defined contribution, fairness, gordon brown, pensions, public sector, tuc
53151 Comment »http%3A%2F%2Fwww.fcablog.org.uk%2F2011%2F10%2Fpensions-justice-but-only-if-you-work-in-the-public-sector%2FPensions+justice%2C+but+only+if+you+work+in+the+public+sector2011-10-12+21%3A19%3A41Christie+Malryhttp%3A%2F%2Fwww.fcablog.org.uk%2F%3Fp%3D5315

Today, 30 June, lots of public sector workers are going on strike, in a protest over proposals to make public sector workers pay more for their final salary pension schemes.

So let's think about two workers. One, Miss Aubergine, is a newly qualified teacher, on £25,000 per year. The other, Mr Banana, is a "fat cat" on £100,000 per year.

Miss Aubergine's scheme asks currently that she pay 6.1% toward her pension. Under the government's proposals, she will pay another 3%. If we use this latter figure, she will contribute £2,275 per year.

Meanwhile, Mr Banana receives the average defined contribution amount from his employer, 6.1%. He contributes the same amount himself. So his pension pot is receiving £12,200, over 5 times Miss Aubergine's contribution.

What do they get in return? Miss Aubergine gets 1/60th of her final salary, currently £416.67. Meantime, Mr Banana must buy an annuity on the open market. At current levels, a pension with the same inflation protection as Miss Aubergine's would require an annuity rate of 2.9%. In other words his pot would buy him a pension of £353.80, almost 10% less than Miss Aubergine's pension.

Typically, Miss Aubergine would enjoy lots of public sympathy and Mr Banana none. But can it really be right that her incredibly generous pension rights aren't recognised in a transparent and honest way?

And also spare a thought for Mr Coconut, a private sector worker on the minimum wage on the NEST contribution rates of 4%+4%. Should we really continue to tax his income to protect Miss Aubergine's current pension arrangements?

Filed under: Current issues, Economics with tags defined benefit, defined contribution, fairness, nest, pensions, public sector, teachers, unions
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