If the People’s Pension , is really the people’s pension, why aren’t the people who are members being told what they are paying for membership?
For some months, I have been saying privately to the management and Trustees of People’s Pension and the management and IGC of the B&CE insurance company (People’s parent) that we need to know the true cost for members of membership.
For some months I have been fobbed off with “limber vows”, so I will now broadcast my complaint a little more vociferously.
Earlier in the year, B&CE swapped their investment management agreement (IMA) with Legal and General Investment Management for an agreement with State Street Global Adviser. This means £2,000,000,000 +of policyholder and trustee money transferred management.
Under the old agreement with LGIM, when the underlying stock was lent to third parties , the revenues for the “stock-lending” returned to the member funds. Typically this is not the case when State Street lend other people’s money. State Street tend to retain stock lending fees for their own purposes.
These fees can represent a lot of revenue. They can actually provide the fund manager with a way of offering fund management charges to B&CE at considerably less than cost, the cross-subsidy from stock lending making what appears unprofitable – profitable.
Ah – but here’s the rub…
Those stock lending fees are no longer benefiting the member, meaning there is a reduction in performance of the member’s funds.
But the reduction of costs in the IMA to B&CE does not benefit the member either, it benefits B&CE. So were People’s to be offering State Street funds within the 0.50% cover all charge rather than LGIM funds, the member may be getting 1- 5 – 10% less for their money!
Put another way, the equivalent price for the People’s Pension could be anything between 0.5% and 0.6% – depending on how much State Street are stock lending, and what percentage of stock lending fees they are retaining!
So why aren’t The People’s Pension responding to my requests?
The People’s Pension recently finished plum last in a Share Action survey of workplace pension governance. B&CE are the only IGC whose IGC Statement I have not read ( I cannot find it).
Over the summer, People’s promised to get their act together and appointed Gregg McClymont’s excellent researcher – Andy Tarrant – to bolster it’s failing corporate governance team. But Andy’s arrival has made no difference (in this respect).
The People’s Pension and B&CE continue to avoid making a statement on how much stock lending is going on with member’s funds and what percentage of the stock lending revenues are retained by State Street. This is in sharp contrast to LGIM who were transparant in this matter.
What can be done?
Because we cannot get the information, http://www.pensionplaypen.com cannot currently give a conclusive rating on the People’s Pension’s investment product. We must assume that no news is bad news – at the very least for People’s investment governance, but quite probably for member’s investment prospects.
The People’s Pension overall rating has fallen substantially because of its failure to be open and transparent in its governance, this matter is a matter of prime importance.
For this is no small deal- in the long term, it is the investment performance of People’s Pension that will determine the outcomes at retirement for its members. While reduced performance in the short-term will not harm People’s marketability, it would ultimately be a critical success factor of what People’s are doing.
All that can be done , in the short term , is flag the problem and ask People’s for the kind of transparency that their name and status as a “master trust” suggests. B&CE is a mutual insurer so , without shareholders, has only its policyholders and its management to reward. If the policyholders (of which People’s is one) are not being fully rewarded, then we can only conclude that the management are being over-rewarded.
So it is in the B&CE senior management’s best interests to prove to us that they are not using stock lending as a means of transferring cost from their balance sheet to member’s returns.
I call upon the management of B&CE and the Trustees of People’s Pension to make a clear and conclusive statement as to what its IMA with State Street says about the distribution of revenues from stock lending activities and how (if at all) this differs from the IMA with LGIM.
Thanks to Andy Agethangelou’s
for another opportunity to discuss this and other matter’s yesterday.
Transparency is not tactical, it is strategic, you cannot choose to be transparent – you either are or aren’t. People’s Pension currently aren’t.
don’t make me laugh
Tagged: B&CE, corporate governance, Funds governance, IGC, Index tracker, People's Pension, SSGA, State Street, stock lending, Transparency
