"I will stop, I will stop at nothing
Say the right things, when electioneering
I trust I can rely on your vote
When I go forwards you go backwards and somewhere we will meet
Riot shields, voodoo economics
It's just business, cattle prods and the IMF
I trust I can rely on your vote
When I go forwards you go backwards and somewhere we will meet"
Radiohead penned 'Electioneering' back in 1997, shortly after Tony Blair's New Labour government came to power. Despite the cynicism of Oxford's favourite miserablists, there was a sense of general optimism in the air. How things have changed. Their lyrics seem more prescient than ever given Gordon Brown's desperate attempt to rally the troops yesterday in Brighton. Although his speech was certainly defiant, the whiff of electioneering was overpowering.
Brown slammed the City as "ideologically bankrupt" in a speech strewn with rhetoric designed to appeal to Middle England and mobilise core support. His assertion that the credit crisis was a failure of rightwing Conservative ideology certainly left a bitter taste in the mouth. He claimed that "what let the world down" was "the Conservative idea that markets always self-correct but never self-destruct". He then blamed the "right-wing fundamentalism that says you just leave everything to the market and says that free markets should not just be free but values-free".
This element of his speech was, at best, what Hollywood might term a 're-imagining' of the current financial predicament and, at worst, a distortion of the truth. It takes a unique kind of amnesia to completely neglect "his own 10-year record as chancellor – when he championed City interests". After all, Brown is a man who had previously spent years advocating and championing a 'light touch' regulatory system and the notion that the market is a more efficient allocator of capital than the state. Robert Peston snappily articulated this state of affairs in his blog today – "Brown snubs Brown". He outlined that whilst the PM's comments were intended as an attack on the Tories, they really just "put the boot into the Brown years at Number 11".
To be fair, lots of people felt exactly the same way about the City during the economic boom, but for a PM who has demanded financial accountability, previously called for an end of the "age of irresponsibility", and even written a book looking at courage, he has probably emerged from this in a less than heroic light. That said, Sarah Brown felt otherwise as she exclaimed "My husband. My hero!"
A more profitable line of argument for the PM, and one which he developed in yesterday's speech, may be to attack the Conservatives over their lack of economic credibility. As today's Independent points out, "the Prime Minister did have a strong case to make about the hesitant and confused manner in which the Tories reacted to last year's global financial meltdown". In pursuing this line, he would, at least, put the onus back on David Cameron to explain how the Conservatives' calls over recent years for even-lighter-touch financial regulation would have helped to avert the crisis.
JS
Wednesday, September 30, 2009
Thursday, September 24, 2009
"I'm not afraid of death. I just don't want to be there when it happens."
Woody Allen can be relied on to reflect the concerns of many of us when it comes to death. He also said "I don't want to achieve immortality through my work. I want to achieve it by not dying."
According to claims made by American scientist Raymond_Kurzweil, 73-year old Mr Allen may yet just about get his wish. Writing in The Sun today, Mr Kurzweil (who, it should be noted, has a book to flog) suggests that the pace of developments in nanotechnology could mean man becoming immortal within 20 years.
This raises all kinds of intriguing questions – medical, philosophical and otherwise. On the face of it, you'd have to see this as a good news story – no more deaths from cancer or heart disease or whatever. But there are downsides. As Bryony Gordon writes in today's Telegraph, "I'm not convinced that I want to live forever. After all, how do you feel alive when you know that you're never going to die?"
And goodness only knows how Mr Kurzweil's prediction will impact on the pensions and insurance industries. Actuaries, pension managers and insurance providers have struggled with the implications of life expectancy increasing at the rate of two years every decade in the UK, let alone the concept of death becoming obsolete. What happens to everyone in the pensions and insurance industries if no-one dies? I suppose at least we'll all have plenty of time to re-train.
AF
According to claims made by American scientist Raymond_Kurzweil, 73-year old Mr Allen may yet just about get his wish. Writing in The Sun today, Mr Kurzweil (who, it should be noted, has a book to flog) suggests that the pace of developments in nanotechnology could mean man becoming immortal within 20 years.
This raises all kinds of intriguing questions – medical, philosophical and otherwise. On the face of it, you'd have to see this as a good news story – no more deaths from cancer or heart disease or whatever. But there are downsides. As Bryony Gordon writes in today's Telegraph, "I'm not convinced that I want to live forever. After all, how do you feel alive when you know that you're never going to die?"
And goodness only knows how Mr Kurzweil's prediction will impact on the pensions and insurance industries. Actuaries, pension managers and insurance providers have struggled with the implications of life expectancy increasing at the rate of two years every decade in the UK, let alone the concept of death becoming obsolete. What happens to everyone in the pensions and insurance industries if no-one dies? I suppose at least we'll all have plenty of time to re-train.
AF
Friday, August 14, 2009
DB or not DB? That isn't the question
No great surprises in yesterday's report from KPMG, on the funding position of the top UK DB pension schemes, but interesting that they feel the "tipping point" has been reached, at which schemes are paying out more on retired scheme members' benefits than on current members' benefits. What's more, 22% of the top DB schemes "face no prospect of clearing pension deficits from discretionary cashflow over any reasonable time period" – a sobering thought given that cashflows are unlikely to improve in the foreseeable future.
The findings echo the views of senior figures in the pensions and investment industries revealed in a Penrose survey earlier this week, of whom 94% thought private sector DB schemes are "unsustainable" and would close to existing members for future accruals in the next couple of years.
With DB schemes seemingly being closed on a "weekly basis", the end of DB provision in the private sector looks to have been factored in by most commentators as pretty much a fait accompli. The debate instead is moving towards what will replace DB schemes. Here the picture is much less clear cut. Many fear employers will revert to DC schemes with contributions levelled down to the minimum prescribed under the Personal Accounts system. Others, such as Adrian Waddingham interviewed in FTfm this week, feel some will bring in some form of hybrid scheme, comprising elements of DB and DC.
The real "tipping point" in all this has more to do with the shift in the balance of risk between the employer and the individual. It's about the labour market and life expectancy. During the post-war period, when many of the DB schemes now facing closure were originally set up, there was a shortage of labour, so employers introduced final salary pensions as a way of attracting workers. Life expectancy for the average UK male was somewhere in the low seventies, so the cost of providing this benefit to people retiring at 65 was relatively low. Nowadays, with unemployment at 2.4 million and rising, employers don't need to go to such generous lengths to attract staff. And with life expectancy in the mid-eighties (and also rising), but retirement age still 65, the cost to employers is significantly greater. To put simply, if a trifle brutally: in 2009 can any rational employer justify offering a DB pension as an employee benefit? The answer, sadly, seems to be a resounding "No".
CM
The findings echo the views of senior figures in the pensions and investment industries revealed in a Penrose survey earlier this week, of whom 94% thought private sector DB schemes are "unsustainable" and would close to existing members for future accruals in the next couple of years.
With DB schemes seemingly being closed on a "weekly basis", the end of DB provision in the private sector looks to have been factored in by most commentators as pretty much a fait accompli. The debate instead is moving towards what will replace DB schemes. Here the picture is much less clear cut. Many fear employers will revert to DC schemes with contributions levelled down to the minimum prescribed under the Personal Accounts system. Others, such as Adrian Waddingham interviewed in FTfm this week, feel some will bring in some form of hybrid scheme, comprising elements of DB and DC.
The real "tipping point" in all this has more to do with the shift in the balance of risk between the employer and the individual. It's about the labour market and life expectancy. During the post-war period, when many of the DB schemes now facing closure were originally set up, there was a shortage of labour, so employers introduced final salary pensions as a way of attracting workers. Life expectancy for the average UK male was somewhere in the low seventies, so the cost of providing this benefit to people retiring at 65 was relatively low. Nowadays, with unemployment at 2.4 million and rising, employers don't need to go to such generous lengths to attract staff. And with life expectancy in the mid-eighties (and also rising), but retirement age still 65, the cost to employers is significantly greater. To put simply, if a trifle brutally: in 2009 can any rational employer justify offering a DB pension as an employee benefit? The answer, sadly, seems to be a resounding "No".
CM
Wednesday, August 12, 2009
Back to the bad old days?
Today's UK unemployment figures make for grim reading. Nearly two and a half million Britons are out of work, the highest figure since the mid nineties, accounting for 7.8% of the workforce. What's more, the data emerges amidst dire warnings of continuing deterioration in the jobs market into 2010 and beyond.
For those of us old enough to remember the 1980's, when unemployment was well over 3 million, one of the striking differences between then and now is the relative scarcity of cultural references to the jobless. Where is today's television equivalent of Alan Bleasdale's Boys_from_the_Blackstuff? Who is recording the noughties versions of The Specials' Ghost Town or UB40's One in Ten? (Admittedly "One in Twelve point Eight" doesn't scan well, but you get my drift.)
Perhaps the cultural references will follow in due course, as the full impact of rising unemployment hits home. But a couple of other explanations occur to me. One is that however frightening redundancy is today, the modern labour market has changed beyond recognition in the last 25 years. Unemployment induced such despair in the 1980s because it affected millions of men (and it was mainly men) in traditional manufacturing industries who had assumed they were in jobs for life and saw no realistic alternative once those jobs disappeared. These days, there can be few people labouring (pardon the pun) under such illusions. Redundancy is still a nasty shock, but not necessarily a cause of despair.
It also occurs to me that some of the generation which grew up watching such TV programmes and listening to those records are now in senior enough positions to affect decisions about redundancy. They may be more inclined to look at freezing or cutting pay, or introducing part-time working as "least worst" alternatives to cutting jobs. Measures like these offer cold comfort to struggling families, of course. But it would be reassuring to think that the lasting impact of the work of Bleasdale and his contemporaries may have played some role in softening the impact of unemployment on today's workers.
AF
For those of us old enough to remember the 1980's, when unemployment was well over 3 million, one of the striking differences between then and now is the relative scarcity of cultural references to the jobless. Where is today's television equivalent of Alan Bleasdale's Boys_from_the_Blackstuff? Who is recording the noughties versions of The Specials' Ghost Town or UB40's One in Ten? (Admittedly "One in Twelve point Eight" doesn't scan well, but you get my drift.)
Perhaps the cultural references will follow in due course, as the full impact of rising unemployment hits home. But a couple of other explanations occur to me. One is that however frightening redundancy is today, the modern labour market has changed beyond recognition in the last 25 years. Unemployment induced such despair in the 1980s because it affected millions of men (and it was mainly men) in traditional manufacturing industries who had assumed they were in jobs for life and saw no realistic alternative once those jobs disappeared. These days, there can be few people labouring (pardon the pun) under such illusions. Redundancy is still a nasty shock, but not necessarily a cause of despair.
It also occurs to me that some of the generation which grew up watching such TV programmes and listening to those records are now in senior enough positions to affect decisions about redundancy. They may be more inclined to look at freezing or cutting pay, or introducing part-time working as "least worst" alternatives to cutting jobs. Measures like these offer cold comfort to struggling families, of course. But it would be reassuring to think that the lasting impact of the work of Bleasdale and his contemporaries may have played some role in softening the impact of unemployment on today's workers.
AF
Thursday, July 23, 2009
Explaining pensions in 140 characters or less
Social networking site Twitter has yet another fan, this time in the form of Dawid Konotey-Ahulu, the founder of pensions adviser Redington. Konotey-Ahulu has urged the pensions industry to start using social media to share ideas. In an article called Telling It Like It Is; The New Reality, posted online today by Financial News, Konotey-Ahulu says the lack of blogs from pension fund officials and investment consultants is a 'crying shame'.
Konotey-Ahulu writes: "It strikes me that there are hundreds of participants in the pensions and insurance industry who could benefit from using social media platforms...I hear so much wisdom from that “crowd” on my travels and very little of it makes its way onto the stage."
However he admits that the Twitter interface, requiring updates to be confined to 140 characters put him off at first. It's a common complaint, but something that Konotey-Ahulu has since come to embrace as it requires 'Tweeters' to distil their complex ideas into easy-to-understand bite-size chunks. In his own words...
"There are thousands of ordinary individuals out there who, between them, sift through thousands of articles, have myriad conversations with other people, and assimilate acres of information. Then they choose the best of the lot. They pore over information, distill the very best (in their own view, admittedly) and then serve it up for you on the plate that is Twitter.
"If you happen to follow those individuals, you have access to their condensed and distilled wisdom. In other words, Twitter aggregates relevant, useful information for you on just about every topic - around the clock. The crucial difference between Twitter and Google, is that Twitter is unnervingly real time, in a very different way to a search engine. They’re calling Twitter the super fresh web."
Self-styled "Pensionsguru", Steve Bee, is similarly enthusiastic. The fact that his Twitter moniker was still available to him, despite his relatively late entry to the world of Twitter, is, he points out, instructive – it seems the pensions industry is somewhat behind the curve in embracing new forms of communication. But with the next generation of pension savers learning about personal finance through the national curriculum, and highly literate in social media, he argues, "our future legislators and civil servants will come into the workforce trained up on Twitter, too. That could bring enormous advantages with it to our future pension legislation."
The rate with which defined benefit pension schemes are being closed appears to have escalated from a drip-drip to a gushing torrent in recent weeks. It seems that firms are taking advantage of the announcements made by their peers to wheel out their own reforms. This pushes the design of defined contribution plans to the fore. If we are to avoid another pensions crisis we need to wake employees up to the fact that the responsibility for a comfortable retirement is now up to them. We need fresh ideas, and perhaps Konotey-Ahulu is right to point to social media as the best forum for sharing these.
Can you recommend any pension-focused social media sites? Let Penrose know at: lisah@penrose.co.uk
LH
Konotey-Ahulu writes: "It strikes me that there are hundreds of participants in the pensions and insurance industry who could benefit from using social media platforms...I hear so much wisdom from that “crowd” on my travels and very little of it makes its way onto the stage."
However he admits that the Twitter interface, requiring updates to be confined to 140 characters put him off at first. It's a common complaint, but something that Konotey-Ahulu has since come to embrace as it requires 'Tweeters' to distil their complex ideas into easy-to-understand bite-size chunks. In his own words...
"There are thousands of ordinary individuals out there who, between them, sift through thousands of articles, have myriad conversations with other people, and assimilate acres of information. Then they choose the best of the lot. They pore over information, distill the very best (in their own view, admittedly) and then serve it up for you on the plate that is Twitter.
"If you happen to follow those individuals, you have access to their condensed and distilled wisdom. In other words, Twitter aggregates relevant, useful information for you on just about every topic - around the clock. The crucial difference between Twitter and Google, is that Twitter is unnervingly real time, in a very different way to a search engine. They’re calling Twitter the super fresh web."
Self-styled "Pensionsguru", Steve Bee, is similarly enthusiastic. The fact that his Twitter moniker was still available to him, despite his relatively late entry to the world of Twitter, is, he points out, instructive – it seems the pensions industry is somewhat behind the curve in embracing new forms of communication. But with the next generation of pension savers learning about personal finance through the national curriculum, and highly literate in social media, he argues, "our future legislators and civil servants will come into the workforce trained up on Twitter, too. That could bring enormous advantages with it to our future pension legislation."
The rate with which defined benefit pension schemes are being closed appears to have escalated from a drip-drip to a gushing torrent in recent weeks. It seems that firms are taking advantage of the announcements made by their peers to wheel out their own reforms. This pushes the design of defined contribution plans to the fore. If we are to avoid another pensions crisis we need to wake employees up to the fact that the responsibility for a comfortable retirement is now up to them. We need fresh ideas, and perhaps Konotey-Ahulu is right to point to social media as the best forum for sharing these.
Can you recommend any pension-focused social media sites? Let Penrose know at: lisah@penrose.co.uk
LH
Friday, July 17, 2009
Myners Retort
Hedge funds have had a tough year so far but things could get far worse if the EU draft directive on alternative investment strategies gets underway. Most European based hedge funds houses' funds are offshore, with many domiciled in the Cayman islands. The directive does not permit these funds to be sold to EU investors, a development which would be massively detrimental to the hedge fund business model and could mean the closure of masses of hedge funds. With 72% of European hedge funds and fund of funds based in London it looks like the UK asset management industry has the most to lose if the directive is implemented.
But has the EU considered the effect this would have on the underlying investors? Perhaps not but City minister Lord Myners certainly has, as this week's press reports reveal. Myners has urged investors to protest again the directive – he says the directive would "reduce choice" by preventing investors from investing in alternative investment funds run by non-EU managers. More than 70% of hedge funds and 2% of private equity funds are managed outside the EU.
The National Association of Pension Finds and European Federation for Retirement Provision have supported Myners' concerns. Lindsay Tomlinson, the incoming chairman of the NAPF, said: "There have been few EU directives that look worrying, but one could understand what they were seeking to achieve and it was possible to focus on particular clauses and seek to make them work better for investors. This does not seem to be the case with the alternative investment fund managers directive, which if implemented as drafted, would have many consequences that in aggregate do not seem to benefit investors."
Myers has revealed that the UK is working on proposals to iron out "deficiencies " in the EU directive and has confirmed that the Treasury has established seven working groups comprising Treasury officials and industry experts, to retool the proposed rules.
What is clear is that a lot of work needs to be done in achieving a united consensus on this directive – watch this space.
NB
But has the EU considered the effect this would have on the underlying investors? Perhaps not but City minister Lord Myners certainly has, as this week's press reports reveal. Myners has urged investors to protest again the directive – he says the directive would "reduce choice" by preventing investors from investing in alternative investment funds run by non-EU managers. More than 70% of hedge funds and 2% of private equity funds are managed outside the EU.
The National Association of Pension Finds and European Federation for Retirement Provision have supported Myners' concerns. Lindsay Tomlinson, the incoming chairman of the NAPF, said: "There have been few EU directives that look worrying, but one could understand what they were seeking to achieve and it was possible to focus on particular clauses and seek to make them work better for investors. This does not seem to be the case with the alternative investment fund managers directive, which if implemented as drafted, would have many consequences that in aggregate do not seem to benefit investors."
Myers has revealed that the UK is working on proposals to iron out "deficiencies " in the EU directive and has confirmed that the Treasury has established seven working groups comprising Treasury officials and industry experts, to retool the proposed rules.
What is clear is that a lot of work needs to be done in achieving a united consensus on this directive – watch this space.
NB
Lord of the Flies… 39 steps to enlightenment…?
Commentators argue in today's papers that the situation in financial markets is the result of the lack of an effective governance framework. The current environment puts Penrose in mind of the William Golding novel, Lord of the Flies and its message that a lack of rules can lead to mayhem and disaster. This analogy leads us to Sir David Walker's report on financial sector corporate governance, released yesterday, which has prompted a savage response from the banking community.
Closer scrutiny of remuneration was always going to be a key feature of the report, but some argue that the recommendations surrounding remuneration merely pander to populist outrage about bankers and their bonuses. Commenting in today's FT, the chief executive of one investment bank said Sir David had caved into populist demands: 'What purpose does this actually serve… it is fundamentally wrong to whip up this hatred of bankers?'
Sir David states that remuneration committees should worry less about whether levels of pay are too high in absolute terms, but rather whether employees are encouraged by bonus schemes to take actions that are not aligned to the long-term interests of shareholders. On the risk monitoring front, Sir David wants bank boards to set up a committee (separate from the audit committee) chaired by a non-executive director, to ensure that boards do not run amok. However one banker in today's FT argues that this will not be effective: 'Risks should be managed by non-executives hour to hour, not by non-executives month to month,' he said. The British Bankers Association, the Association of British Insurers and the Institute of Directors welcomed the vast majority of Sir David's recommendations, although the IMA said the regulator should not get involved in deciding the best way to manage money.
Arguably the main aim of Sir David's report is to change the culture of governance rather than the rules; he summed it up as an attempt to make the board 'a less cosy, comfortable place'. Indeed if these proposals eventually come into force it has been suggested that the UK is destined to have the toughest standards in the world…
EV
Closer scrutiny of remuneration was always going to be a key feature of the report, but some argue that the recommendations surrounding remuneration merely pander to populist outrage about bankers and their bonuses. Commenting in today's FT, the chief executive of one investment bank said Sir David had caved into populist demands: 'What purpose does this actually serve… it is fundamentally wrong to whip up this hatred of bankers?'
Sir David states that remuneration committees should worry less about whether levels of pay are too high in absolute terms, but rather whether employees are encouraged by bonus schemes to take actions that are not aligned to the long-term interests of shareholders. On the risk monitoring front, Sir David wants bank boards to set up a committee (separate from the audit committee) chaired by a non-executive director, to ensure that boards do not run amok. However one banker in today's FT argues that this will not be effective: 'Risks should be managed by non-executives hour to hour, not by non-executives month to month,' he said. The British Bankers Association, the Association of British Insurers and the Institute of Directors welcomed the vast majority of Sir David's recommendations, although the IMA said the regulator should not get involved in deciding the best way to manage money.
Arguably the main aim of Sir David's report is to change the culture of governance rather than the rules; he summed it up as an attempt to make the board 'a less cosy, comfortable place'. Indeed if these proposals eventually come into force it has been suggested that the UK is destined to have the toughest standards in the world…
EV
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