Pensions World

Mark Hyde-Harrison, NAPF chairman, on the Budget, Solvency II and infrastructure

As I write this column, the Chancellor’s Budget has just been delivered and, while much of the detail may now be a dim memory, it was a Budget that the pension industry should welcome.

The two reasons for this are that we have moved a step nearer a flat state pension of £140 per week which will help everybody better understand what the state provides without all the means tested add ons.

The second reason is that nothing was said on changes to pension’s tax relief which was a real fear and possibility. The fact that it was not, to my mind, must be partially down to the excellent work of Joanne Segars and the team at the National Association of Pension Funds (NAPF) who were lobbying hard in the background.

United opposition

The eurozone crisis continues to lurch from one deadline to the next, but it is forcing governments to make bold, big decisions about the future of Europe and to date these have been pushing for greater and greater integration. While the UK has not gone down this path, the ramifications will affect us as the European institutions will become more powerful and we will find regulations that are poorly fitted to our requirements.

The most obvious is the IORP Directive (Solvency II) and I attended a public hearing in Brussels last month to discuss this. The crux of the debate is that the Commission passionately believes that a single market has been and will continue to be good for growth and jobs in Europe and that the IORP Directive will create a level playing field across Europe for this to happen. On the other hand, I and most of those attending believed that the IORP Directive will create an enormous shift of capital away from companies and so damage growth and jobs in Europe. It was pleasing to see trade unions, business representatives, regulators and trade associations from across Europe come together to make this point so that the Commission was left in no doubt that there were significant concerns about this Directive. However, I am realistic enough to know that what was said will not have changed its mind, but hope that it may have slowed its progress. This will be a topic that runs and runs in 2012.

Worst controlled expense

The subject of bankers’ bonuses and executive pay is one that is always bound to make news headlines, but it often generates more heat than light. I recently chaired a seminar between pension schemes and the chairs of remuneration committees to discuss this issue and I was struck by how much the non-executive directors making these decisions were trying to make the right decision. However, while each decision may in one year be justifiable, the reality is that in aggregate non-executive directors have failed to control executive pay and the scale of this failure is monumental, as on a multi-decade view directors’ pay is the worst controlled expense in the corporate world. I do firmly believe, though, that the best way to find a solution will be through appropriate dialogue between non-executive directors themselves and with owners of companies.

Infrastucture investment

In the government’s autumn statement last year, it was announced that the government and the NAPF were working together to source and fund infrastructure investments. The work has continued over the winter and at the NAPF investment conference in March pension scheme members were told where the discussions had reached and how they could express an interest in the opportunities. This is a great initiative to source more inflation linked assets for pension schemes and if you are interested please contact the NAPF.