You wait for ages and three come along at once

Somewhat like buses (so I’m told), official pronouncements calculated to raise the blood pressure come in packs.

So, following hard on from yesterday’s release of the Parliamentary Commission on Banking Standards, my attention has been drawn to Pension Minister Steve Webb’s comments on CDC. 

Yes, you might well ask. It turns out to be nothing to do with communities, development or corporations, but is about pensions: Collective Defined Contribution arrangements, to be precise.

Webb’s beef is that now that almost all the good old final salary (and other defined benefit) pension plans are being closed down (except for many public servants, of course), people’s only real option to save for retirement is to build up their own individual fund. 

They and (thanks to auto-enrolment) their employer will pay specified amounts into the fund which, they hope, will grow to fund pension benefits later on. 

The problem is that lots of small individual funds cost a lot to run, and individual members are at the mercy of the investment markets at the time they want to cash in, so whilst some people will do well, others will cash-in at a bad time. 

And many will be put into “lifestyling” funds which gradually move their pension into boring funds with (probably) lower returns in the last few years before retirement – swapping the potential of decent returns for some safety.

So what’s his idea? It’s using a collective approach which pools investment returns and annuity mortality. That got me thinking. 

What if someone could design an investment fund which took the worry away from individual investors and smooth out their returns? 

It could collect contributions and invest widely in equities, property, gilts, etc and decide on a yearly basis how the profits should be allocated among members – let’s call it an “annual bonus”. 

In a good year, it could tuck some excess return under the mattress so that in a bad year, it could continue to provide a smoothed return. Once profits had been allocated, they couldn’t be taken away. 

And if, when a person retired, there was still cash under the mattress, they could be given a special “terminal bonus” to reflect the overall return made on their contributions.

Suppose we took it a stage further? What if it were a mutual company offering such a fund? All the profits would be available for the members, even the mortality profits when annuitants die before their allotted three-score and ten.

Now there’s an idea – a mutual company  running a fund with smoothed returns and with profits for its members. Hang on…

Change your culture or go to jail

Paul Myners has said, in response to this morning’s release of the ParliamentaryCommission on Banking Standards, that “nothing much will happen at least for 24 months”.

That seems to us to be a reasonable assessment of the prospects for action by a Government besieged by banking lobbyists and conflicted by its own desire to keep the economy going.

Yet, despite the industry’s efforts to keep all this change at arm’s length, there is some evidence that the patient may be recognising the need to heal itself, beginning perhaps at Barclays, in response to the Salz Review.

The key word, in our view, is “fiduciary”: the implicit duty of the Board of a company to act in the interests of those who have entrusted their monies to it. Shareholders, in the case of listed companies, and members in the case of mutuals.

Sadly, the executives of mutuals have been no less generous in rewarding themselves than those of listed enterprises.

“When I hear the word ‘culture’, I reach for my gun” has, apparently, been wrongly attributed to Hermann Goering. But the truth in that aphorism is that changing the culture of an organisation is not a task to be undertaken lightly.

And we have advised more than a few clients to find a more effective way of achieving behavioural change than just announcing a new set of corporate values, supported by so-called town hall meetings involving all staff.

Above all else, what matters is what the guy at the top does. And what the people then do. And what gets measured.