Trustee Briefing: Queen’s Speech 2012 - what you need to know
In the first Queen’s Speech since the coalition was formed in May 2010, the government has set out its legislative agenda for the coming year, including changes to shareholders’ voting power, public pensions and bringing forward the state pension age to 67 sooner than expected.
The government sets out its plans once a year in a ceremony where the Queen reads out bills and draft bills, giving an indication of government policy and intentions for the forthcoming year.
1. Enterprise and Regulatory Reform Bill
After a month of high profile investor revolts, the government has reacted by giving shareholders a binding vote on the bonus payments that companies propose to award their chief executives. Currently shareholders merely have an advisory vote which is effective only in raising the media profile of remuneration packages.
It remains unclear what percentage of the vote a company will need to win in order for a payment to be approved.
2. Public Service Pensions Bill
The government is standing its ground over public sector pension reform. Despite industrial action, and the threat of more to come, efforts to cut pension promises down to size will continue unabated. The major way this will be implemented is through switching members from lucrative final-salary to more sustainable career-average pensions.
The Queen said: “Legislation will be introduced to reform public service pensions in line with the recommendations of the independent commission on public service pensions.”
3. Pensions Bill
In line with efforts to combat the effect on liabilities of people living longer than ever before, the state pension age will be increased to 67 between 2026 to 2028. The Queen also reaffirmed the government’s plans to introduce a flat rate state pension of £140 a week.
What does this mean for trustees?
With the introduction of real voting rights for shareholders, trustees will have more power over internal decision-making in the companies in which they invest. Therefore, it is important to ensure good communication between trustee boards and asset managers.
Mark Hoble, a partner in Mercer’s executive remuneration team, said the consultants “are supportive of measures that encourage greater engagement between companies and shareholders on remuneration.”
However, he continued, “it is difficult to see how a binding vote on pay issues will address the limitations of the current advisory policy on pay”.
What next? Action points
Trustees should challenge their consultants over the voting history of asset managers and decide whether or not active shareholder voting is something the scheme is interested in pursuing.
Further details revealed in the speech outlining the coalition’s desire to separate banks’ retail and institutional investment operations is also something for trustees to keep an eye on. Legislation that prevents banks lending to businesses – by enforcing a culture of asset padding – may convince the Bank of England to continue with its policy of quantitative easing in a bid to increase credit levels. Further use of QE will give schemes more headaches as they struggle to cut deficits amidst rock-bottom gilt yields and interest rates.