A lot has happened since the edition of Pensions News (PN) which came out (in most cases) on 24 June 2016.
As you read this, you, the reader, know the result of the referendum in which Britons were asked whether they would like their country to remain in or leave the European Union (EU). You will also know (or should know) how you feel about that result.
PN was asked how he felt about the result during a meeting shortly after the referendum result confirmed that more than half of those who decided to vote on 24 June thought that they and this country generally would be better off outside the EU. The meeting, which involved clients and other advisers, would normally have begun with a two minute discussion about how everyone was however it became a twenty-five minute discussion about what PN is (to date) refusing to call “Brexit”. If he did, PN would be using a word which appears to have no actual meaning and he would risk become needlessly involved in answering a question, the answer to which nobody seems to know. Before leaving the subject of the non-word referred to in inverted commas, PN will state only that he does not believe that the answer “Brexit means Brexit” gets anyone anywhere.
PN has not, at any point in his career, seen so high a level of political engagement; a level of engagement which seems to transcend all sections of society. The meeting referred to above was only one example of how otherwise uninterested persons (in a political sense) could spend a long time in debating a subject deeply political. Applying this engagement to pensions, PN has noticed (and noted during the meeting referred to) the number of articles on pensions which have the referendum result in the title and/ or referred to many times in the content.
PN was also surprised to find that an organisation as normally calm and collected as the Financial Times (FT) had introduced a new section into its website (i.e. new in the sense that it was established after 24 June 2016) which has the title “pensions crisis”. Crisis is a term which is usually applied to situations and subjects other than pensions. A pension or a pension scheme is not usually in a situation which can be described as a time of intense difficulty or danger so PN was naturally interested to see what the FT thought justified so dramatic a title.
What PN found was a series of articles which gave a fairly clear and concise explanation; as one would expect of the FT. The FT noted that, shortly after the result of the referendum, the value of many investments held by institutions such as pension schemes had fallen in value. This fall in value had, according to the FT, caused an increase of approximately £85bn to be added to the 6,000 (or so) occupational pension schemes which are in this country and which provide members with benefits on a salary-related or “defined benefit” (DB) basis. Many analysts and advisers have expressed concern that the loss referred to above, when coupled with the increase in cost and the decrease in the value of low-risk assets could only be bad for employers with DB pension schemes. It was helpful therefore, in a sort of a way, when the Pensions Regulator stated (as it did a few days ago) that it “expected” trustees of those schemes to ask for more money from those employers to bridge the latest funding gap.
PN looked elsewhere in the newspapers and noted that the political fall-out from the referendum (i.e. the fall-out that caused Mr David Cameron to resign as Prime Minister and his successor, Ms Theresa May to form a new administration) had affected pensions. Ms May, Prime Minister, has, in assembling her first administration, caused the (last) pensions’ minister, Baroness Altmann to be dismissed. The Baroness, who appeared far from pleased at the decision to replace her and has (in particular) claimed that she was “frozen out” of discussions concerning the British Steel Pension Fund and how to deal with it, has been replaced by an under-secretary (he is Mr Richard Harrington MP). This apparent demotion of the position (i.e. from minister to under-secretary) caused a former pensions’ minister, Mr Steve Webb, to tell the FT that he found this a “shocking decision”. Mr Webb went further, in fact, and stated that he found it “astounding” that, at a time pensions was so important, there should be no pensions minister (as such).
PN does not know and does not feel qualified to give a view on whether the apparent disappearance of the position of “pensions’ minister” will affect pensions. The DWP has indicated that the role will be no different but, evidently, Mr Webb is far from convinced.
PN is concerned that the problems on which he has reported in recent editions will not go away and have probably been exacerbated by the referendum result. By way of a “for instance”, the British Steel Pension Scheme, a scheme which appears to be standing firmly in the way of a deal to rescue what is left of British Steel, has been hit by the decrease in the value of investments and this, according to the FT, is likely to affect the transaction itself.
At least the referendum result has not affected the story surrounding the BHS Pension Scheme (or so PN thought). Mr Frank Field MP, continues to try to force Sir Phillip Green to fund the deficit in the BHS Pension Scheme. He has written to the trustees of that scheme to urge them to put pressure on Sir Phillip to act. Understandably Sir Phillip has not been impressed by the substance of Mr Field’s letter.
Finally, and to conclude with a reference to where we began today, during the opening part of the meeting which PN referred to in opening this article, there were comments from certain stoical persons who told colleagues and advisers that the result of the referendum meant that the country would get its borders back, it would achieve new trade agreements with its trading partners, there would be new opportunities and all would be well. PN hopes these persons will turn out to be right but is far from convinced that they will and said so. One particular participant even made the comment which PN quoted earlier on in this article although the quote PN set out was actually attributed to our new Prime Minister. At this, PN recalled the words of HL Mencken which could have been written for a situation such as the one we are in and which words were quoted (albeit in a different context) in the FT on Wednesday this week by Mr Martin Wolf; “for every complex problem, there is an answer that is clear, simple and wrong”.
Until next time………