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Are Pensions Tightening the Screws?
Submitted by Leo Kolivakis, publisher of Pension Pulse.
Hundreds of pension experts are to meet in Edinburgh next month to discuss the challenges facing the pension market. And there are plenty of challenges. The UKPA reports that there is a call for pension funds bonus action:
Pension funds must play a greater role in demanding a crackdown on excessive City bonuses to protect pensioner cash, Lord Myners has said.
The City minister told the National Association of Pension Funds (NAPF) that fund trustees and institutional investors had a "legal duty" to pensioners to ask for better standards from the financial services industry and insist on more modest pay deals.
Lord Myners said there had been "significant shortcomings" and failures to take boards to task that had cost savers dearly.
The biggest failure of all was in letting bonuses reach sky-high levels, but soaring levels of financial services fees also needed to be addressed.
"We appear to have lost the ability to hold the boards of some public companies to account," he said.
"In light of the recent financial turmoil and the sheer quantum of value destroyed by some governance shortcomings, I think it is fair to ask all participants in the investment chain to act in every way possible to prevent history repeating itself."
He added: "You have a legal duty to your beneficiaries to protect the value of assets held in trust on their behalf and a duty to the businesses in which you invest. Shareholders need to meet their responsibilities as owners."
The NAPF launched a new governance code to promote better engagement within the pension fund industry. But Lord Myners also added to calls for an independent industry body to represent institutional investors, regardless of sector, industry or product.
In response to Lord Myners' speech, NAPF chief executive Joanne Segars said: "We recognise that stronger companies mean stronger pension schemes. Pension schemes remain committed to their role as responsible owners and to driving up corporate governance standards in the UK.
"We will support the Government in improving corporate behaviour, but we also need their help in supporting workplace pensions and we urge the Government to use its last Budget of this Parliament to provide the support they are crying out for."
Interestingly, the Telegraph reports that pension funds are telling hedge funds to drop fees:
Last year thanks to its best performance in a decade, the hedge fund industry grew to $1.6 trillion from $1.4 trillion at the end of 2008. But almost half European and Canadian pension funds that negotiated lower fees in 2009 expect charges to drop further in 2010, a survey from industry consultant bFinance shows.
The results reveal that in 2009 28pc of pension funds brought management fees lower, with 19pc also paying less in performance fees. Now, 40pc warn they expected performance fees to go down by 25pc this year with base fees also continuing to fall.
Hedge funds have traditionally charged annual management fees of 2pc, plus performance or incentive fees.
But many have been battling client anger over excessive charges, which has pushed the average annual fee down to 1.63pc. Last year just 31pc of hedge funds were in a position to collect performance fees because they hadn’t fully recouped investment losses in the financial crisis.
Hermes Fund Managers, the UK’s largest pension fund with £21bn under management, mostly from the BT pension scheme, recently announced it would allow all its investors to claw back performance fees.
In a world of increased volatility and meager returns, pension funds will scrutinize bonuses awarded to bankers and put increasing pressure on hedge funds to lower fees. My only concern is who is scrutinizing the pension fund managers, making sure they're not taking stupid risks or gaming their benchmarks? What's good for the goose is good for the gander.
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where the fk were these pension funds 10 years ago when the executive class managed to turn OWNERS into ponzi participants while pocketing the entire decade's worth of profits in stock buyback options support and bonuses?
Pensions and mooch funds are the real owners of american corporations, yet they let the managers take ALL the cash profits. This is how CEO pay multiples got to 250:1. They are taking all the profits and letting owners eat the share price collapse after the "targets" that the managers "made" turned out to be Enron'd.
Ownership simply MUST force disgorgement of profits as dividends and lobby for changes in this regulatory regime. Nobody I know who owns a small business lets the store manager take all the excess cash out of the register at the end of the night and pocket it.
Pensions sat around jerking off while megabillions in real cashflow were spent on stock buybacks while at the same time the corporation was issuing the same amount of shares to management in options grants.
Stock buybacks are another way of saying "We don't have any constructive or useful things to do with our money, so we're going to sink it into driving up the value of our CEO's bonus." The only beneficiaries of a buyback other than the executives were the lucky people who got their shares bought.
nothing here move along
No currency will do this for you, yet gold can going into 2011.
pensions being paid out by bankrupt california lol
" pensions being paid out by bankrupt california lol"
CalPERS is currently paying 6,133 retirees more than $100k a year.
The top 10 list is between $499k and $224k a year.
The CalPERS $100,000 Pension Club
The second tab is CalSTRS the education pension fund. There are 3,090 retirees taking over $100k. Before you go hatin' teachers... there are no teachers that retire on $100k.
Note: The formulations for regular employees (teachers, etc.):
HIGHEST SALARY x (Years of Service) x (2.0% to 2.7%)
Depending on contract.
Cops, Firefighters:
HIGHEST SALARY x (Years of Service) x (3%).
A state lifer who works 30 years would received retirement income from between 60% to 80% their top salary.
Those are worthless, Peter Principled over paid ADMINISTRATORS. Every public school answers to:
Principal and their staff = Management
(Principal $90k-$140k)
That answers to:
School district = Mo' Management
(Superintendents retired at $285k)
That answers to:
County Office of Education = Mo' Management
(County Administrators retired on $249k)
That answers to:
State Dept. of Education = Mo' Management
(1 State Superintendent, 6 Deputies all +$150k)
That answers to:
Fed Dept. of Education = Mo' Management
What does Mr. Change's Chicago "CEO" of Schools A-hole Duncan make?
How many layers of management does it take for a kid to get a text book, a decent classroom and decent teacher to get an education? Certainly not all these management clowns.
If Cali wants to turn itself around it can start by firing the redundant layers of Peter and Peterette managers at every level in the state... Then cap pensions at a maximum of household median income which is currently around $64k.
Why should jerk off managers suck at the public trough for DECADES AT $100k t0 $500k a year and then take home a huge pension at 2 to 8 times median household income of your average workers in Cali?
sell the buck on all rallys
buy gold ..
the smart money world wide and loaded to the gills deep pockets are buying gold
of course jim sinclair has only folllowed the gold market for 50 years ..
and many who berate him are the acne pocked young faces..
where else can we find these kind of statments
"The floating exchange system as it now exists is going be folded. We are moving toward a one Western world currency, and one Western world central bank of central banks.
Because all Western world federal budget deficits are out of control and there is no PRACTICAL method to reverse this condition in the foreseeable future, there is no other alternative.
That means the two major Western World currencies will be Gold and the SDR (type entity)."
Pension Funds exist simply to create management fees and a place for Wall Street or sharp real estate guys to dump their crap.
The greatest move in pensions is to fire all managers and buy CD's - cash did MUCH better than anything any pension fund has done and that will again hold true for the next decade.
Leo - keep shining the light on this issue.
Hard working people are forced to dump good money into these sink-holes HOPING that some government will step in and rescue them at the end. Of course, the public sector is exempt.
Funny thing is PSPIB and CPPIB were created in the last decade to diversify away from good old boring Canadian government bonds. The thinking was "In order to get the required actuarial rate of return, we need to take more risk". Only problem is that they do not account for downside risk. More money flowing into private markets, emerging markets, structured products, hedge funds, private equity, infrastructure, commodities, etc. Government bonds? Who the hell wants government bonds? Well, if deflation does materialize, government bonds are the only thing that might save you.
Pensions are in the front of the incompetent self preservation line.
Sell your asses folks, nothing more than another sucker-charade.
This market is history, a chasing in the wind.
Leo, thanks for your ongoing updates on the pension situation. I also agree with you that pension fund management should be more closely and independently evaluated on their risk/performance benchmarks.
Public pensions are a ticking time bomb getting too little attention in a world filled with financial threats. The poster child for kicking can down road, that's for sure.
Rainman,
You are welcome. The pension problem isn't going away, but it's a slow death until comes the day of reckoning. Sort of like Greece, it took a full-blown crisis to introduce austerity measures but this fiscal disaster has been festering for decades! With pensions, we leave it up to the board of directors to make sure they're properly supervised, but these board of directors are often sleeping at the switch (to be fair to them, they can't possibly be aware of all the risks being taken by the senior pension managers). The governance system needs to be reviewed and replaced and politicians need to be upfront with stakeholders, including taxpayers, and figure out how they will salvage our pension system.
Amen. And these Boards of Directors are often interwoven with very visible and blatant conflicts of interest. It is an act of generosity to label them as simply being " asleep at the switch ".
< disclaimer > I am not now or will be a pensioner.....just an investor obsessed with this compelling disaster as it unfolds.
Rainman, I have been in enough board of director meetings to know their strengths and weaknesses. And yes, some aren't asleep at the switch, they are brain dead.
I will be "retiring" at age 50, in 3 months, moving
on to my next career....
I have decided to take the cash out option on the pension.
I am worried about solvency in these plans and don't want to
take the risk of loosing the pension completely.
I have also decided to spend the sum total of my retirement
plans down to zero by age 80, instead of spending interest only.Not much choice, yields being what they are today.
Also don't want the government to end up with my retirement principal, upon my demise.....
FWIW
Thanks for the junk comments, nice to know you are all concerned about the state of pensions.
Your one trick regurgitation is junk.
Ok, so don't buy the dips and don't accumulate solar shares on extreme weakness. Plenty of choices out there. Stick to high quality companies that pay out handsome dividend yields. Importantly, I never told anyone to follow my advice, but I do note that if they got scared away from the markets since last March, they would have missed a hell of a rally.
No replies on that comment?
Leo, your name came up when I read this story ;-)
It's about 4 pensioners (old age vigilantes) feeling screwed:
"A quartet of disgruntled German pensioners is alleged to have taken the law into their own hands after investments turned sour. The four, plus an accomplice, faced charges of kidnapping in a German court on Monday. They are accused of holding their financial advisor hostage for four days last June after sustaining heavy losses on property investments in the US."
A sign of the times.
http://www.spiegel.de/international/zeitgeist/0,1518,676654,00.html
It's all useless.
There simply aren't going to be the returns these pension funds are predicated on anytime in the forseeable future. And, I suspect, even if returns somehow do approach the 5-8% area again, what will that cash buy for a retiree?
Not only do we face an ongoing explosion in the money supply, we likely will also see higher prices for real commodities ~ food, energy, metals etc. ~ too. How much of this is likely to be organically-generated GDP growth, and how much is debt-induced? Indeed, how relevant are the GDP numbers likely to be in a future so clouded with cheap credit, ersatz growth, and price inflation?
Pension funds will have to somehow pay out based on returns of 1-4% is my guess. IF that. Which is simply unsustainable, for either the actuaries or the retirees.
Creeping insolvency, anyone?
The problem is much worse than LK states, due to the millions of workers that will be hired in 2010, heh Leo?
You should go work for Fox News... your grasp of reality matches up well with Ailes and his bunch of new-fascist lunatics.
In the above case....the government decides to print $12 Trillion while the total economy is at $40 Trillion....which because of dilution...wealth is transferred amongst the haves and have nots....BUT the real economy does not change and stays at $40 Trillion....
Agree....experts: Crisis will get much worse
"My only concern is who is scrutinizing the pension fund managers, making sure they're taking stupid risks or gaming their benchmarks? What's good for the goose is good for the gander."
Leo,
TSL and CSIQ both look to be headed for $16 or so , wich do you like better on risk reward basis?