29 May 2009
…the Office for National Statistics (ONS), whose new report on Pension Trends reveals that "employees on low earnings are less likely to belong to pension schemes than higher-paid employees". It seems only 21% of men and 32% of women earning less than £300 a week are members of employers' pension schemes. The only surprise here is that those numbers are as high as they are.
Earlier this week, a BBC report found that half of UK adults between 20 and 60 are not saving into a pension. Again, maybe not surprising.
The numbers do, though, provide a useful indication of the importance of the new Personal Accounts system, due to be up and running in 2012. Regardless of the ongoing woes of workplace pension providers, pension deficits and demographic time bombs, it's worth remembering that Personal Accounts are probably the last chance to provide much needed additional retirement income for millions of people on middle and low incomes, and to avoid that burden falling entirely on taxpayers of the future. Who, let's face it, will have enough on their plates after recent developments in the public finances.
Tom Stevenson, writing in the Telegraph earlier this week , invoked Goethe, no less, in addressing this issue: "whatever you can do, or dream you can, begin it".
AF
Friday, May 29, 2009
Friday, May 22, 2009
The Times They Are Exchanging
21 May 2009
"Regrets I have a few, but then again, too few to mention,
I did what I had to do, and saw it thru' without exception,
I planned each chartered course, Each careful step along the by-way.
And more, much more than this, I did it my way."
So it's farewell to the "iron-lady" of Paternoster Square, as Dame Clare Furse yesterday stepped down as chief executive of the London Stock Exchange after eight years in the hot-seat. More Sinatra than Piaf, Dame Clara did concede that she had a few regrets. However, as always, she was resolute in her defence about fighting off the five takeover approaches during her tenure.
Never loved but always respected, financial commentators have treated the exit of "Queen Clara" with more affection than resentment. Platitudes aside, it's always been accepted that the worth of a CEO must be judged by whether they leave their company in a better state than they found it. Jeremy Warner in The Independent said that this question could be answered strongly in the affirmative.
Still, Dame Clara has left a mixed legacy and despite her vigorous refusal to sell the family silver and taking the LSE's share price to just short of £20, she exits the borse with shares trading at 689p and the institution lying sadly outside the FTSE 100. Perhaps the real black mark against her name was not snapping up Liffe, the financial futures market, back in 2001 – suffering the indignity of rival Euronext pinching it from beneath her nose and leaving the LSE without a world-class and highly lucrative derivatives operation.
Our attention now turns to Xavier Rolet, the great white hope, who takes over from Dame Clara with a strong reputation and genuine understanding of the LSE's machinations given his previous position at Lehmans – formerly the exchange's biggest client. Some have suggested that he's taking over at the perfect time, reaping the rewards if a recovery takes hold.
However, to affect such a change, a real evolution will be required. The European trading landscape has been transformed since the MiFID reforms of 2007. The market is increasingly fragmented and the traditional hegemony enjoyed by market stalwarts like the LSE is being increasingly challenged by multi-lateral trading platforms such as Chi-X and Turquoise. The LSE has also been slow to react to the threat posed by dark pools, which provide liquidity not displayed on order books, allowing traders to move large amounts of shares without revealing themselves to the market.
So Monsieur Rolet, to persist with the protracted musical motif, some advice below:
"You better start swimmin'
Or you'll sink like a stone
For the times they are a-changin'"
JS
"Regrets I have a few, but then again, too few to mention,
I did what I had to do, and saw it thru' without exception,
I planned each chartered course, Each careful step along the by-way.
And more, much more than this, I did it my way."
So it's farewell to the "iron-lady" of Paternoster Square, as Dame Clare Furse yesterday stepped down as chief executive of the London Stock Exchange after eight years in the hot-seat. More Sinatra than Piaf, Dame Clara did concede that she had a few regrets. However, as always, she was resolute in her defence about fighting off the five takeover approaches during her tenure.
Never loved but always respected, financial commentators have treated the exit of "Queen Clara" with more affection than resentment. Platitudes aside, it's always been accepted that the worth of a CEO must be judged by whether they leave their company in a better state than they found it. Jeremy Warner in The Independent said that this question could be answered strongly in the affirmative.
Still, Dame Clara has left a mixed legacy and despite her vigorous refusal to sell the family silver and taking the LSE's share price to just short of £20, she exits the borse with shares trading at 689p and the institution lying sadly outside the FTSE 100. Perhaps the real black mark against her name was not snapping up Liffe, the financial futures market, back in 2001 – suffering the indignity of rival Euronext pinching it from beneath her nose and leaving the LSE without a world-class and highly lucrative derivatives operation.
Our attention now turns to Xavier Rolet, the great white hope, who takes over from Dame Clara with a strong reputation and genuine understanding of the LSE's machinations given his previous position at Lehmans – formerly the exchange's biggest client. Some have suggested that he's taking over at the perfect time, reaping the rewards if a recovery takes hold.
However, to affect such a change, a real evolution will be required. The European trading landscape has been transformed since the MiFID reforms of 2007. The market is increasingly fragmented and the traditional hegemony enjoyed by market stalwarts like the LSE is being increasingly challenged by multi-lateral trading platforms such as Chi-X and Turquoise. The LSE has also been slow to react to the threat posed by dark pools, which provide liquidity not displayed on order books, allowing traders to move large amounts of shares without revealing themselves to the market.
So Monsieur Rolet, to persist with the protracted musical motif, some advice below:
"You better start swimmin'
Or you'll sink like a stone
For the times they are a-changin'"
JS
Investors Reluctant to Shell Out for Under-Performing Execs
20 May 2009
Earlier this year, there was much speculation about whether the recession would mean more active shareholder engagement with the companies they invest in. The Investment Management Association seems to think so.
And Shell executives were yesterday given an emphatic reminder of this issue, when 59% of shareholders voted against the company's remuneration policy.
Commentators have drawn parallels with a similar vote at GSK six years ago. At that time, new legislation had compelled UK listed companies to put their pay arrangements to an advisory shareholder vote for the first time. Many, it seemed, were caught unawares. Shareholders, represented by groups such as the National Association of Pension Funds, made clear their intention to hold executives to account over what were seen as excessive rewards for poor performances. The arguments set out by the then NAPF Chief Executive, Christine Farnish, will still resonate with investors in today's troubled markets.
The Shell vote suggests that the lessons of six years ago have not yet been learned. So what next? Perhaps, as Nils Pratley argues in the Guardian today, shareholder votes on remuneration issues should be made more than just "advisory"?
Earlier this year, there was much speculation about whether the recession would mean more active shareholder engagement with the companies they invest in. The Investment Management Association seems to think so.
And Shell executives were yesterday given an emphatic reminder of this issue, when 59% of shareholders voted against the company's remuneration policy.
Commentators have drawn parallels with a similar vote at GSK six years ago. At that time, new legislation had compelled UK listed companies to put their pay arrangements to an advisory shareholder vote for the first time. Many, it seemed, were caught unawares. Shareholders, represented by groups such as the National Association of Pension Funds, made clear their intention to hold executives to account over what were seen as excessive rewards for poor performances. The arguments set out by the then NAPF Chief Executive, Christine Farnish, will still resonate with investors in today's troubled markets.
The Shell vote suggests that the lessons of six years ago have not yet been learned. So what next? Perhaps, as Nils Pratley argues in the Guardian today, shareholder votes on remuneration issues should be made more than just "advisory"?
Getting the work/death balance right
7 May 2009
Yesterday's paper from the National Institute of Economic and Social research, suggesting the projected explosion in government debt could be addressed by raising the state retirement age, resulted in a flurry of predictable "Work 'Til You Drop" headlines.
To those of us who view the current retirement age of 65 as soul-crushingly distant, such headlines might induce despair. But as the BBC's Economics Editor, Stephanie Flanders, points out, "there are no good options for cutting government debt, but extending all of our working lives could be the best of a bad lot". The NIESR reckons that extending our collective working lives by just one year would reduce the national debt by 20% of GDP over 30 years. Put in those terms, raising the pension age begins to look like an increasingly attractive option for a cash-strapped Exchequer.
Hefty increases to the state pension age have already been factored into existing legislation. The pension age for women will increase from 60 to 65 over the next 10 years, and there will be a further increase for everyone, from 65 to 68, between 2023 and 2046.
Back in 2002, the former Minister for Welfare Reform, Frank Field, pointed out that if the average length of retirement when the current state pension was introduced in 1948 had been maintained, the state pension age would now be over 74. Around the same time, the then Secretary of State for Work and Pensions, one Alistair Darling, was warning that growing life expectancy was placing an intolerable strain on the pension system. It was not feasible, he pointed out, for a forty year working life to provide enough cash to sustain someone through a retirement of thirty years or more.
Mr Darling may draw some comfort from the findings of Cambridge University geneticist, Aubrey De Grey. He's perhaps at the slightly wacky end of the spectrum, but if he's right, even raising the retirement age to 100 would leave some of us enjoying 900 years of retirement. Presumably he's ploughing his savings into manufacturers of colostomy bags and walk-in showers as we speak…
Yesterday's paper from the National Institute of Economic and Social research, suggesting the projected explosion in government debt could be addressed by raising the state retirement age, resulted in a flurry of predictable "Work 'Til You Drop" headlines.
To those of us who view the current retirement age of 65 as soul-crushingly distant, such headlines might induce despair. But as the BBC's Economics Editor, Stephanie Flanders, points out, "there are no good options for cutting government debt, but extending all of our working lives could be the best of a bad lot". The NIESR reckons that extending our collective working lives by just one year would reduce the national debt by 20% of GDP over 30 years. Put in those terms, raising the pension age begins to look like an increasingly attractive option for a cash-strapped Exchequer.
Hefty increases to the state pension age have already been factored into existing legislation. The pension age for women will increase from 60 to 65 over the next 10 years, and there will be a further increase for everyone, from 65 to 68, between 2023 and 2046.
Back in 2002, the former Minister for Welfare Reform, Frank Field, pointed out that if the average length of retirement when the current state pension was introduced in 1948 had been maintained, the state pension age would now be over 74. Around the same time, the then Secretary of State for Work and Pensions, one Alistair Darling, was warning that growing life expectancy was placing an intolerable strain on the pension system. It was not feasible, he pointed out, for a forty year working life to provide enough cash to sustain someone through a retirement of thirty years or more.
Mr Darling may draw some comfort from the findings of Cambridge University geneticist, Aubrey De Grey. He's perhaps at the slightly wacky end of the spectrum, but if he's right, even raising the retirement age to 100 would leave some of us enjoying 900 years of retirement. Presumably he's ploughing his savings into manufacturers of colostomy bags and walk-in showers as we speak…
In Cod We Trust
5 May 2009
The Bank of England is, it seems, hoping to learn something from the animal kingdom and other non-financial structures about how better to run the financial sector.
Gillian Tett, in the FT this weekend, reports that Mervyn King and his colleagues have been brainstorming with Lord Robert May, eminent zoologist and former head of the Royal Society, about whether the actions of the financial services industry can be predicted or controlled in the light of what we know about animal behaviour or environmental systems.
A paper co-authored by Lord May last year suggested that risk management in the financial sector is analogous to fisheries management. This latter has tended to focus on management of single species (for the financial sector, read individual banks, say), but the current trend is to regard such analysis as incomplete, and that "the wider ecosystem and environmental context (by analogy, the full banking and market system) are required for informed decision-making".
If this sounds fishy to you, it's worth looking at related findings in a paper just published by the Bank's Executive Director of Financial Stability, Andrew Haldane. This notes that, "however sensible structuring of credit may have seemed for individual firms, it is difficult to conceive of a network which could have been less structurally robust. Darwinian evolution is currently in the process of naturally deselecting CDOs. But there is a strong public policy case for the authorities intervening more aggressively when next financial innovation spawns species with undesirable physiological features."
Another striking analogy with the natural world is used in an Ftfm article this week, to demonstrate that "what may be good from an individual investor's point of view is not necessarily in the interests of the investment community as a whole".
What next in the apparently ever more closely linked worlds of finance and nature? Hedgehog fund managers? Primate equity?
Maybe we should just be grateful for a bull market…
The Bank of England is, it seems, hoping to learn something from the animal kingdom and other non-financial structures about how better to run the financial sector.
Gillian Tett, in the FT this weekend, reports that Mervyn King and his colleagues have been brainstorming with Lord Robert May, eminent zoologist and former head of the Royal Society, about whether the actions of the financial services industry can be predicted or controlled in the light of what we know about animal behaviour or environmental systems.
A paper co-authored by Lord May last year suggested that risk management in the financial sector is analogous to fisheries management. This latter has tended to focus on management of single species (for the financial sector, read individual banks, say), but the current trend is to regard such analysis as incomplete, and that "the wider ecosystem and environmental context (by analogy, the full banking and market system) are required for informed decision-making".
If this sounds fishy to you, it's worth looking at related findings in a paper just published by the Bank's Executive Director of Financial Stability, Andrew Haldane. This notes that, "however sensible structuring of credit may have seemed for individual firms, it is difficult to conceive of a network which could have been less structurally robust. Darwinian evolution is currently in the process of naturally deselecting CDOs. But there is a strong public policy case for the authorities intervening more aggressively when next financial innovation spawns species with undesirable physiological features."
Another striking analogy with the natural world is used in an Ftfm article this week, to demonstrate that "what may be good from an individual investor's point of view is not necessarily in the interests of the investment community as a whole".
What next in the apparently ever more closely linked worlds of finance and nature? Hedgehog fund managers? Primate equity?
Maybe we should just be grateful for a bull market…
Death and Taxes
29 April 2009
The proposal to impose a tax rate of up to 30% on pension contributions for higher earners seems unlikely to prompt a resurgence in Government popularity. Indeed, the Government's own online pensions page makes no mention of the proposal.
To be fair, HMG has said it will consult on the idea, so the plans are not necessarily set in stone. But reaction so far has been colder than a witch's nipple. Apart from the impact on the pockets of the wealthy pension saver, (such as your average national newspaper editor), the pension industry is up in arms about the flagrant contradiction of a longstanding tenet of UK pension design – namely that, unlike many regimes elsewhere in Europe, UK pension contributions are tax exempt, as are investment returns, but pensions in payment are subject to income tax. Any change is bound to be seen with, at best, concern and, at worst, horror, by the UK pensions industry.
So, partly in a no doubt vain attempt to add an element of balance to the debate, but mainly just to be contrary, can I recommend this interesting, if rather technical, OECD paper from 2001? It suggests that the pre-paid tax model has a number of features to recommend it – notably that it brings forward the taxation income deferred under the present system, reduces the scope for tax evasion by collecting the money up front, and raises more revenue from those who are higher rate tax payers in their working lives but revert to basic rate tax in retirement.
Politically, there is a fascinating parallel with the political debate in 1997, when the soon-to-be-ousted Conservative administration proposed something similar through its Basic Pensions Plus idea, to the scorn of the then opposition.
The proposal to impose a tax rate of up to 30% on pension contributions for higher earners seems unlikely to prompt a resurgence in Government popularity. Indeed, the Government's own online pensions page makes no mention of the proposal.
To be fair, HMG has said it will consult on the idea, so the plans are not necessarily set in stone. But reaction so far has been colder than a witch's nipple. Apart from the impact on the pockets of the wealthy pension saver, (such as your average national newspaper editor), the pension industry is up in arms about the flagrant contradiction of a longstanding tenet of UK pension design – namely that, unlike many regimes elsewhere in Europe, UK pension contributions are tax exempt, as are investment returns, but pensions in payment are subject to income tax. Any change is bound to be seen with, at best, concern and, at worst, horror, by the UK pensions industry.
So, partly in a no doubt vain attempt to add an element of balance to the debate, but mainly just to be contrary, can I recommend this interesting, if rather technical, OECD paper from 2001? It suggests that the pre-paid tax model has a number of features to recommend it – notably that it brings forward the taxation income deferred under the present system, reduces the scope for tax evasion by collecting the money up front, and raises more revenue from those who are higher rate tax payers in their working lives but revert to basic rate tax in retirement.
Politically, there is a fascinating parallel with the political debate in 1997, when the soon-to-be-ousted Conservative administration proposed something similar through its Basic Pensions Plus idea, to the scorn of the then opposition.
Non-Execs please, We're British
27 April 2009
A feature of this recession has been the ongoing debate over who's to blame. In this context, a variety of culprits have been cited. The regulator blames institutional investors. Sections of the media blame the regulator. The Daily Mail blames Gordon Brown. Some, it seems, are even blaming the PR industry.
In view of all this, it's interesting to note the results of a Newsweek poll which reveals 85% of respondents place some blame at the door of the banks, while 73% allocate some blame to the Fed. Perhaps the most interesting thing about this poll, however, is the date – January 1991.
One group who seem to have emerged relatively unscathed from the blame game so far are non-executive directors. It's only seven years since former Tory Trade and Industry Secretary, Lord Young of Graffham, raised eyebrows by calling for the scrapping of non-executive directors. As a parting shot from his then role as president of the Institute of Directors, Lord Young argued that unless directors could get to know a business as well as executive directors, "why bother?"
Derek Higgs, who was subsequently charged with producing a report on the role and effectiveness of non-executive directors, offered a rather more positive vision, and proposed a more important role for them in ensuring the interests of investors were properly represented at board level.
Perhaps it's telling, then, that six years on from the Higgs review, this week's FTfm features a piece from ICSA policy director David Wilson, which identifies the banking crisis with "a colossal failure of corporate governance", and, in an echo of Sir Derek's original report, calls for greater courage and understanding from non-execs.
A feature of this recession has been the ongoing debate over who's to blame. In this context, a variety of culprits have been cited. The regulator blames institutional investors. Sections of the media blame the regulator. The Daily Mail blames Gordon Brown. Some, it seems, are even blaming the PR industry.
In view of all this, it's interesting to note the results of a Newsweek poll which reveals 85% of respondents place some blame at the door of the banks, while 73% allocate some blame to the Fed. Perhaps the most interesting thing about this poll, however, is the date – January 1991.
One group who seem to have emerged relatively unscathed from the blame game so far are non-executive directors. It's only seven years since former Tory Trade and Industry Secretary, Lord Young of Graffham, raised eyebrows by calling for the scrapping of non-executive directors. As a parting shot from his then role as president of the Institute of Directors, Lord Young argued that unless directors could get to know a business as well as executive directors, "why bother?"
Derek Higgs, who was subsequently charged with producing a report on the role and effectiveness of non-executive directors, offered a rather more positive vision, and proposed a more important role for them in ensuring the interests of investors were properly represented at board level.
Perhaps it's telling, then, that six years on from the Higgs review, this week's FTfm features a piece from ICSA policy director David Wilson, which identifies the banking crisis with "a colossal failure of corporate governance", and, in an echo of Sir Derek's original report, calls for greater courage and understanding from non-execs.
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