Are Pensions Tightening the Screws?

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.