Blog: The Archers effect

 

Radio 4’s long-running soap opera The Archers might, according to the BBC, be a cosy tale of ‘contemporary life in a rural setting’ these days, but when it was first introduced in 1950, it had another purpose. The plotlines were developed in conjunction with the Ministery of Agriculture and intended as a means of giving support and passing good practice on to smallhold farmers still struggling to produce sufficient crops to counteract the effects of rationing.

While the MoA’s role might have stopped in 1970, The Archers is still a source of easily-absorbed information on the challenges facing smallholders and rural communities today - the Agricultural Story Editor, namechecked at the end of each episode, must be one of the more specialist jobs in broadcasting.

This week the DWP released its first wave of advertising aimed at improving awareness of pensions savings and paving the way for auto-enrolment. The adverts, which appeared in national newspapers, are the first shot in an £11m campaign that will incorporate billboard, radio and newspaper advertisments. Such a mix sounds more akin to the reminders we see about filling in tax returns by the 31st January than about changing the attitudes of members of the population who, to date, have had no interest in pensions or savings at all. And, a quick look at the website to which readers will be directed certainly sent me running to the hills in fear.

The messages that need to be put across are of vital importance if, as a nation, individuals are going to be encouraged to save more for their pensions and if auto-enrolment is to succeed as a part of that. Perhaps the DWP should consider following in the footsteps of its predecessors at the Ministery of Agriculture and put a few pensions-related storylines into the likes of EastEnders - or indeed The Archers. That might sound like a daft idea, but the January 3 episode of EastEnders attracted a whopping 11.3m viewers - and Coronation Street trumped even that at 12.5m pairs of eyes over the festive season.

If the DWP would like to take me up on this suggestion, I have a few plot lines in mind…

 

 

6 December: Maggie Williams reports from the NAPF Trustee Conference on the auto-enrolment details that matter

I spent today at the NAPF’s Trustee Conference in London. In addition to meeting up with some familiar (and not so familiar) trustee faces, this was also a great chance to hear some industry views on important trustee topics.

I chaired the defined contribution stream at the conference, where we discussed some of the inner details of auto-enrolment (or rather Simon Butler and Alan Salamon of Friends Life answered the difficult questions, while I merely kept order). As auto-enrolment gets closer, the decisions that need to be thought through get down to finer and finer detail - but not getting those details right could be disastrous once your staging date has passed and auto-enrolment becomes an everyday activity, not a one-off preparation project.

For example, what will your scheme do with the money it receives from newly-enrolled members who have not yet decided whether to opt out? Should it remain with the employer in cash? If so, are you confident that the employer will not go out of business while holding that cash? Should it be transferred immediately to the trust (if you have a trustee board)? If so, what should the trustees do with it? If they invest it in equities what will happen if markets fall, then the member subsequently opts out? The scheme is still required to pay back the member’s original contributions even if the investments bought with that money have fallen in value. However, if trustees leave that money in cash and the member remains in the scheme, are they running the risk of reducing the size of the member’s pension pot if markets surge upwards?

That might sound like a short-term problem - after all, members have to make a decision on whether they will opt out within three months of joining the scheme. But multiply that problem by the number of new members surging into schemes when a company hits its staging date and you are suddenly talking about a lot of money floating around in limbo.

There’s no one-size-fits-all solution to questions like this - but trustees and governance boards will need to think them through sooner rather than later.

 

Eurobonds - a German issue. 15 November

An announcement came out today that the EC is considering enabling the European Central Bank to issue pan-European ‘Eurobonds’. At present, each Eurozone country produces its own bonds - and for holders of Greek and Italian bonds in particular, the last few weeks have been a fraught time. The proposal came as something of a surprise as up until now both Germany and France have been vehemently opposed to the idea.

As the provider of the most significant amounts of capital into the ECB, Germany is understandably concerned that it will in effect be propping up the weaker countries within the Eurozone. Germany’s Bundesbank is also the biggest bank with which the ECB conducts its day-to-day business.

However, perhaps this lastest proposal is a recognition that Germany is in many ways already propping up the single currency. Making the ECB into a ‘lender of last resort’ and providing it with the capital to achieve that through bond issuance could be a necessary compromise required to save the region from economic disaster.

But ultimately the decision will be Germany’s to make. The country is in such a strong financial position compared to many of the others in the region that it can call the financial shots.

 

A small fall - 11 November 2011

Consumer Prices Index (CPI) inflation - the measure increasingly being used to calculate increases for pensions - fell back to 5% today, from last month’s painful 5.2%. Retail Prices Index (RPI) inflation also fell back by 0.2% (from 5.6 to 5.4).

It’s (roughly) good news for schemes - but when even CPI is above the 5% cap on pension increases in place for many schemes, it makes the controversy over the switch for RPI to CPI rather academic.

 

Easy DC? Anything but - 8 November 2011

 

I went to the PMI’s Trustee Conference today. In addition to my own speaker slot to promote our Engaged Investor Awards, I enjoyed listening to Alistair Elliot from The Pensions Regulator, who explained the Regulator’s new increased focus on defined contribution (DC) governance - promoting better DC scheme management.

It’s been easy in the past to overlook DC, particularly in companies with a defined benefit scheme to handle as well. There’s even been a perception that DC is somehow easier governance-wise than DB. In fact, if anything, it’s harder - every single member needs to have a good outcome (as the Regulator puts it) from individual decisions around their pension. And that’s really difficult to manage.

 

 

I’ll have what they’re having - 7 November 2011

The Pension Protection Fund announced today that it had achieved investment returns of 0.7 percentage points above its investment benchmark for the year. As a consequence it is well on its way to being self-sufficient as planned by 2030.

Chief executive of the PPF Alan Rubenstein credits the “nature of our investment strategy” for the gains - which begs the question, if the PPF can be self-funding within a 18-year timeframe, can other DB schemes with appropriate support from the Regulator, in terms of recovery plan timescales, achieve the same result?

That might be possible, but then of course the PPF, whilst still accountable to the schemes which pay its levies, doesn’t have to report mark-to-market figures on a company profit and loss account every year.

And, while the good times might be rolling for the PPF at present, it would only take one very large scheme to tip into its safety net to make its balance sheets look very different indeed.