BLOODY REVOLUTION!! THE RETURN OF STALINISM! CLOSET RE-NATIONALISATION!!
Turner's Proposals for a National Pensions Savings Scheme.
The satirical magazine 'Private Eye' used to call a campaign of public resistance to reform by an establishment body with selfish interests as: 'And Huge Snakes Will Roam the Countryside'.
And indeed, we seem to be experiencing a concerted campaign of vilification and mud-slinging by the Financial Services industry against Turner's sensible proposals to set up a National Pension Savings Scheme, rather than handing individual savers, neatly trussed for plucking, to the industry's hungry salesmen.
Over the Top....
Here are a few of the reactions to the proposals from the financial services industry.
Peter Butler, the CEO of Governance for Owners (GO), a new investment fund, ("Dedicated to adding long-term shareholder value for clients by exercising owners' rights"), commented that the National Pensions Savings Scheme would allow "Nationalisation by the back door".
He has called on the International Corporate Governance Network, an investor-led body, whose UK representatives include Peter Montagnon of the Association of British Insurers, Alan MacDougall from the Pensions Investment Research Consultants (PIRC), and Bruce Babcock of ADP, a brokerage house, to place the subject on its agenda and try to devise a standard for state pension funds to adopt. "It's a very significant issue"", Mr Butler said, pointing to similar schemes in Norway, Sweden, Germany, New Zealand and Australia, (In the main, rather successful and sensible countries - author) which potentially have huge power because of the pool of money they invest but operate without corporate governance benchmarks. "There isn't a standard or code of governance for these funds".
Christine Farish, CEO of the National Association of Pension Funds, the pension industry lobby group, went even further in her vilification of the NPSS - "A monolithic quango" and "A throwback to the Stalinist era", were two of the more positive things she had to say.
However, there are more supportive voices coming from, for example, Which?, the former Consumers' Association, which has a good record of protecting punters' rights against rip-offs.
The attitude of 'Which?' to the Financial Services industry can be gauged from its comments on the related subject of Stakeholder Pensions, which were an attempt by the current government to interest the industry in setting up affordable and user-friendly individual pension plans:
"The Financial Services Industry sulked and protested when stakeholder pensions were introduced. Companies complained that they would make little or no profit because of the low charges. So now they want to double them.
Three years on, the industry has carried on with its tantrums and is trying to strong-arm the government into putting up charges on stakeholder pensions.
If it succeeds, many people will have to increase their contributions by about a quarter just to maintain their level of their pension.
Which? Has been lobbying strenuously to keep charges down"
What has got up the industry's nose?
The potential opportunities opened up by setting up a sensibly governed and well-managed National Pensions Savings Scheme are really interesting - and potentially revolutionary - but hardly Stalinist.
Just consider:
- A pension scheme free of the corruption and dishonesty that has riven the pensions and savings industries for decades - just recall personal pensions mis-selling in the 1980's that cost punters over £15 billion. At the end of this piece, there is a summary of just a few of the rip-off's and 'scams' the industry has afflicted on the public.
- A pension investment operation free of salesmen's commissions, and excessive investment and administration charges.
Patrick Hosking quotes insurance expert Ned Cazalet who told a committee of MP's that the insurance industry spend £5 billion a year on administration and £7 billion on underwriting new business, mainly on commissions to salesmen. Says Hosking, "You have to ask, is an industry that costs £330 per household in administration and £570 per household in commissions each year, sustainable? - A golden opportunity to undermine the gross short-termism, gambling and speculation that has turned the UK investment markets into a destructive lottery. This is a ray of hope on the horizon - just think - a pension scheme that had real clout and took a long-term, responsible approach to investment in good companies!
(Not only do many elements of the financial services industry do their customers down, the London investment market is the world's worst for rampant speculation and short-termism - to the point of causing needless destruction of industry, especially high-tech industry. The City is a prime reason that Britain invests less in R&D than almost every other developed country.)
See The City forgets it's raison d'etre - and abandons investment for speculation and gambling and Why the FTSE 100 is the worst investment market in the world for high-tech and innovation
Governance.
Certainly, a National Pension Savings Scheme will need to be well-governed and free of bureaucratic and political interference.
(But we should remember that governance rules haven't stopped many in the UK financial services industry from freely robbing and swindling their customers).
A first step would be to have a Constitution that guaranteed its independence from politicians, civil servants and already established players in the investment industry. This could be reinforced by insisting that it has a board that contains top class investment expertise, of the ilk of Warren Buffett, strong representation from Customers - Which? might have some ideas - and representatives drawn from government, business and the academic world.
The scheme could be guided by a Constitution and Rules of Governance that outline its duties to members and its approach to Responsible Investment, Risk, long-term holding, churn and administration and transaction charges.
But before rushing ahead of ourselves, the experience of New Zealand, Australia and the Scandinavian countries should be studied carefully and copied where appropriate. All of these countries are world leaders in business and also seem to have developed a healthy balance between commercial and societal interests - something we in Britain are miles away from.
A Message to Politicians........
Dear Messrs Brown, Hutton and especially Blair,
Turner's proposals for a National Pension Savings Scheme represent a golden opportunity to do something quite revolutionary to support the well-being of ordinary people, and the future success of British industry.
Do not hand this opportunity to the Financial Services Industry - we all know what they did the last time, and are still doing now - and true madness is to repeat the same mistake, supposing for no good reason that things will turn out better next time.
So, despite the private lobbying, public exhortations, threats and inducements that you will doubtless be bombarded with by the industry - take the principled course and set up a Scheme for the public benefit free of the industry and politics.
Not to do so will be read by many as a sell-out to the industry and final demonstration of neglect of the public interest.
End Piece - Here's What Could Happen if we don't Take Care.
A few examples of financial services industry mal-practise.
- Personal pensions mis-selling. The pensions industry, taking advantage of the deregulation of the provision of pensions and the opportunity to sell people alternatives to their occupational pensions, sold millions of personal pension plans, frequently grossly over-selling their benefits by comparison with previous arrangements.
Millions lost out and eventual compensation, delivered reluctantly by the pensions companies, amounted to more than £15 billion. This represented deception on a bewildering scale, and scarred many people. - Endowment Mortgages. Individuals were sold insurance-based savings schemes that were initially guaranteed to mature and pay off their mortgages at a specified future date. Unfortunately, investment returns were not sufficient to cover the whole mortgage, and hundreds of thousands, if not millions, of people were left with large shortfalls that they did not expect. Again, another example of mis-selling by the industry, leading to a shortfall estimated to be some £40 billion - that's a lot of shortfall for a lot of people.
- Precipice Bonds. People were offered very high income returns on investment bonds - what most did not appreciate was that the promise did not cover the value of the investment capital - a large number of individual investors lost large amounts of capital, to the tune of £2.2 billion.
- Split capital investments, initially designed for rich and sophisticated investors, but then marketed to a more general market. Investors expected either to receive an enhanced capital sum at the end of an investment period, or income plus a capital sum. These bonds were sold as safe investments, but in many cases turned out to be anything but.
Over 50,000 people lost over £700 million. - Additional Voluntary Contributions. A large number of prudent people topped up their pension contributions in the expectation that they would receive an enhanced pension at retirement age. The collapse of Equitable Life, a major AVC provider, cost thousands over 50% of their hard-earned savings.
Behind the high-profile cases - a constant stream of lower-level malpractise.
The high profile cases represent the high notes of a discordant symphony. The background 'music', which is likely to impact the public consciousness just as much is an almost daily dirge of mal-practise and excess. Here is a small random sample:
- Pressure selling of loan and credit deals, including sending blank cheques and inviting people to 'take the money now'. The loans and credit industry has bombarded the populace with offers based on the seductive notion that people can have everything that they want - immediately.
The result is a huge burgeoning of personal debt, which is bound eventually to hurt millions when they cannot repay. Patrick Hosking in the 'New Statesman' gives the example of Lloyds TSB, which badgered a couple into taking on £100,000, despite the fact that the husband was unemployed and mentally ill and the wife was a low-paid part-time nursing assistant.
An audit revealed that staff were highly incentivised to maximise loans - a sample of 185 loans revealed that 104 were inadequately documented and evidence that a further 31 borrowers could not afford the loans.
Banks and credit card companies have been publicly castigated by MP's for their 'excessive' rates of interest on loans.
Lord Griffiths, a vice-chairman of Goldman Sachs, is reported as being very concerned at the £1 trillion plus of unsecured debt in Britain and the social misery and economic disruption that may be inflicted by it. It appears that Lord Griffiths is convinced that the purveyors of such credit and debt need to be curbed in their pressure selling. - Profiteering by banks on credit card insurance, according to the 'Guardian' of April 4th 2005. About 25% credit card customers and half of loan customers buy payment protection from the banks. About 14% of Lloyds TSB profits and 180% of Egg's come from credit insurance. DTI figures show that only 4% of customers (some of whom are unaware of the fact that it is optional) claim on the insurances and of this tiny minority one quarter are turned down. Consumer groups reacted angrily to what they described as blatant profiteering.
- Charging on ATM 'Hole in the Wall' machines. Following a considerable outcry at the growing habit of banks to charge for the use of ATM machines, the practise was curtailed. Now the practise is creeping back through the back door by banks selling their machines to ATM operators who charge customers. Banks have also been castigated for varying interest payments on savings and loans without direct notification to customers and a variety of sharp practises that have stirred a deep well of ill-will amongst their customers.
- Some Building Societies have been exposed as offering incentives, such as a £3,299 plasma TV to people who sign up for mortgages, sometimes up to 130% of the value of their properties.
- "Standard Life reneges on payouts", says the 'Guardian' of October 6th 2004. Indeed it appears that Standard Life, preparing for flotation, has withdrawn an implied 'promise' to bail out mortgage endowment holders facing shortfalls. Says the 'Guardian', The move affects 600,000 policyholders covered by the pledge, many of whom will now receive top-up payments that are tens of thousands of pounds less than they were expecting.
