Pension funds want more money for mismanagement

| August 13, 2008 | 0 Comments
Pension funds want more money for mismanagement

Final salary pension funds return to the red, with pension trustees looking for more money to shore up the losses.

What no one seems willing to talk about, though, is the mismanagement of final salary pension funds - and how the managers of these funds have been actively seeking to generate losses against their own assets.

In simple terms, at times of market stress, it appears that pension funds overall are happy to lend their stock equities to hedge funds for shorting - even though the result is to reduce the value of the equities the pension funds hold.

For a clearly picture, Robert Peston at the BBC covered the issue in more detail regarding how banks have been actively shorted over this year, and the central role pension funds have played in actively allowing this to happen.

For final salary pension fund managers to then turn around and complain that market volatility - which they have driven - has resulted in a reduction in equities values - which they actively contributed to - all strikes as pitiful whining from self-serving interests.

I can’t imagine any bank offering to lend you a pound coin, and happy to receive a fifty pence coin back plus a ten pence coin fee - and claim this makes for good business. It seems like only pension fund managers do.

Of course, the pension fund managers may retort that just because they loan equities for shorting does not mean that these always lose value. Shorting does not guarantee share price falls. True.

But in declining markets where the trend in shorts gives a clear indicator to concerned investors that specific share prices are expected to decline, it creates extra stress and downward pressures against that share price.

And any pension fund manager that allows their funds to be sold short, and helps downwards pressures on share prices to exacerbate, is probably open to accusations of being incompetent or negligent at best.

However, final salary pension fund managers are supposed to be providing a service to their customers. They should be properly answerable for the service they deliver.

Unfortunately, they only answer to the very corporations who set up the schemes, rather than the members.

The sad fact is that the ordinary man and woman on the street, who would see these managers for the morons they are, are not the ones making the decisions.

Luckily, Gordon Brown - who spent a decade destroying pensions, through removal of tax relief and any ability for any business to gain in any way from running a pension - now allows for individuals to invest in pensions themselves directly via SIPPs.

It’s not an ideal situation - after all, with no tax relief or similar incentive to save for retirement, and probably limited financial planning experience, ordinary people can make decisions on pensions, but are not necessarily empowered to make the right decisions.

In fact, the government has already been ruled against in court for giving wrong advice on retirement planning and even outright maladministration of pensions.

And let’s face cold reality here - frail old pensioners with no money are looked after for free by the state.

While those who saved away have their money stripped away from them in over-priced care homes which commonly deliver a shoddy lack of service and professionalism.

The underlining truth to all of this is that pensions as a savings vehicle needs urgent attention, at all levels.

And despite that the government has already looked to overhaul the pensions process with Pension Accounts coming into force in 2012, how can such a scheme work when the very pension fund managers at the top of provision intentionally actively devalue their own assets - and therefore ordinary pension savings, in the process?

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