Proper Pensions first! Say “No” to Inclusive Ownership Funds.

john mcdonnell

Talk this morning of compulsion on private sector employers to give shares to staff. It’s not a new idea and many companies do this already. I’m with Justin Urquhart-Stewart who told listeners to Wake Up To Money that (future) Governments should not be messing with Government structures as John McDonnell’s Labour party policy would.

 

Only two old-boys from my school feature on this blog; Justin’s one, Andrew Warwick-Thompson’s another. You can tell that I come from an over-privileged background. I don’t agree with Justin on principle, just on practicalities, there are many ways to reward staff that don’t involve bureaucracy but Labour’s plan to force companies to award staff ownership via “Inclusive Ownership Funds”- isn’t one of them.


Tell Sid… this is not for him

In America, the grant of shares to staff is very much tied up with “bad news”. Going back to the days of Enron, it was common for the American workplace pension (401k) to be loaded with the “stock” of the sponsoring employer.

Which wasn’t the greatest of ideas if shares dumped, as they regularly did. Nowadays, the retirement plans of Americans tends to be based on more diversified “mutual funds”.

Individual share ownership and pensions are not easy bed-fellows. This article argues that proper pensions should come first

This is not an argument against individual share ownership or of owning the shares of the employer that you work for.  But US experience suggests that where you incentivise or compel employers into messing with the share register- unexpected consequences tend to follow.

Not one of the old boys, but my favourite Bryanston “old girl”, Carolyn Fairbairn, director general of the CBI, is saying much the same as me. Sid is not going to benefit from seeing investors march away from UK equities – as a covert corporation tax – dilutes their share-holding. The Inclusive Ownership Funds won’t really be much about Sid, more about balancing the books of a wider fiscal plan

The amount available to workers would be capped at £500, with the rest – estimated at £2.1bn a year by the end of a five-year Parliamentary term – going into a fund to pay for public services and welfare


Remind Sid about his pension…

Labour’s plans are targeted at larger private sector employers, those with more than 250 employees. These are the companies that – till recently – were running the greatest long-term incentive plans Britain has ever had – collective pension schemes.

These schemes have declined under repeated interference from Government to the point that they have become economically unviable. There is an opportunity to revive the provision of collective pensions among the companies McDonnell is targeting but it is not through converting Britain into “John Lewis LLP”. The opportunity is to restore the incentives for large and medium sized employers to participate in their own – or multi-employer collective pensions – operating under the rules that broadly prevailed before Government interference.

I mean of course DC schemes established under CDC rules where the employer contributes meaningful amounts and employees consider their careers with that employer enhanced by the scheme they are in.

It seems to me that McDonnell’s plans are directly targeting the money that employers could and should be setting aside to fund the collective pensions of the future. What is more, the “long-termism” envisaged by McDonnnell’s proposals has a lot more in common with US “long-term” than the British version. US long-term means employees getting access to their “pensions” to pay off debt and purchase houses, UK long-term means a “wage in retirement”

We need a cohesive policy to fund our pensions and it is not going to happen by clobbering employers with what they will rightly see as a corporation tax.

Instead, Labour should be focussing on getting all employers to be sponsoring their staff’s pensions – under auto-enrolment – at realistic amounts.


Pensions first

I hope shadow pensions minister Jack Dromey and his pension cabinet (some of whom I know) are reading this.

The gulf between the funding of public and private sector pensions has never been wider. Despite auto-enrolment, there is little depth in the future sponsorship of private sector pensions. Large employers regard DB pensions, rather as banks regard PPI, as a kind of “financial asbestos” that seemed a good idea when it went in and is proving costly to get rid of.

The long-term solution is not to rebuild with more toxic DB but to use better construction – using  collective DC arrangements which the Labour Party support.

But these CDC plans don’t happen without big-time support from employers. Taxing those employers through Inclusive Ownership Funds would nip the revival of proper funding of DC – in the bud. It would severely curtail the chances of CDC developing. It would swap genuine long-termism – as practiced in this country by our once-great pension schemes, for phoney ownership which would be perverted by corporate tax- advisers as happens in other countries.

We need to have Treasury policy that starts putting pensions first. The success of auto-enrolment suggests we prefer Workie to Sid. We are not a nation that craves ownership of our employers but one that wants a proper wage in retirement in return for loyalty  and hard work.

Proper pensions in the first place

tell sid.jpg

Sid had a proper pension in the first place.

 

About henry tapper

Founder of the Pension PlayPen, Director of First Actuarial, partner of Stella, father of Olly . I am the Pension Plowman
This entry was posted in actuaries, CDC, pensions and tagged , , , , , . Bookmark the permalink.

5 Responses to Proper Pensions first! Say “No” to Inclusive Ownership Funds.

  1. Brian G says:

    Maybe what people need more Henry is a decent wage in employment? When so many people are on zero hours contracts receiving minimum wages how is a few extra per cent into their pension going to help? Whilst I happen to agree with you about the need for employers to pay more meaningful pension contributions surely the more immediate priority is to get people earning enough to buy their own food rather than queueing up at a food bank?

    Liked by 1 person

    • henry tapper says:

      Very much so! But your point is best made about the gig economy which offers no prospect of proper employment, pensions or ownership

      Like

      • Brian G says:

        Possibly. But there is also a very sizeable proportion of people with a full time employment contract earning less than £15000 per year who simply cant afford to progress or even survive. And this is at the same their chief exec and others are trousering millions of pounds each year.

        Like

  2. Brian G says:

    Possibly. But there is also a very sizeable proportion of people with a full time employment contract earning less than £15000 per year who simply cant afford to progress or even survive. And this is at the same their chief exec and others are trousering millions of pounds each year.

    Liked by 1 person

  3. henry tapper says:

    This is true, this blog is particularly about pensions; we are keen that these people are not ripped off by not getting promised pension saving incentives. (search under Net Pay)

    Liked by 1 person

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