Pension Funds

Pension Funds—Part 1

The campaign for divestment of fossil fuel shares by pension funds (and particularly local authority pension funds) has generated a considerable focus on the administration of these funds. (And now funds investing in companies selling arms to Israel.)

These investments include bonds and specific equities (e.g., Shell, BP, Exxon, etc.). but increasingly they consist of bundles of shares and some highly opaque other related financial “products” created and managed by vast global conglomerates like Blackrock or Shroeders. To find out what and how much fossil fuel investment is buried in them is a considerable challenge. Facing the pressures for a more ethical approach, we now have “low carbon” funds, but it is almost impossible to establish how low “low” is.

My understanding is that the ultimate governance and decision-making of the LA pension funds rests with the pension fund committee of the “lead” local authority in each fund.

For example, the Dyfed Pension Fund manages the pensions from 3 local authorities (Carmarthenshire, Pembrokeshire, and Ceredigion) as well as the police, civilians, fire brigades, and more. The lead authority is Carmarthenshire. The key body is the Carmarthenshire Pension Committee. (There is a “scrutiny” body as well, which is called a “Board”. This has membership from a wider field than the Pension Committees, but for the purposes of this brief, we will leave a debate about their role for another day.)

The Carmarthenshire Pension Committee consists of three councillors (two from Plaid Cymru and one from Labour). Again we will leave an explanation as to how this is “proportionate” for another occasion.

Let’s take an important step back and just explain where the funds they manage actually come from.

Employers deduct a fixed percentage from employees earnings and make a contribution themselves. This is all “deferred wages”. It belongs to the employees and pensioners.

For some reasons that have never really been seriously examined by the political world, it is deemed that the best way to run these shares in the best interests of the pensioners is…. to gamble with them!

So the game is to maximise the dividends in order to provide a good return for the pensioners. The three members of the Carmarthenshire Pension Fund “benefit” from an extraordinary amount of advice.

There is the Council “Section 151” officer whose job is to ensure that nothing unlawful or risky is done with council funds. There is a specific council fund manager, and crucially, there are “expert” advisers. They are not council employees. They come from the thriving world of fund management and hedge betting, spread betting, and so on. Dig around a bit, and you usually find that they are connected in some way with fossil fuels, the arms industry, tobacco, breweries, and obscenely wealthy high-tech entities.

But they purport to be “independent” advisers. 

The poor old councillors are repeatedly reminded that they have a fiduciary duty to ensure the best returns for the pensioners. The suggestion that the fossil fuel companies have a good track record of high returns (actually, not really true) can only be meaningfully sensible if you believe that the more successful these companies are, the gloomier the outlook is for the human race, but that cooking the pensioners is nothing to do with fiduciary duties. (The investment in renewables by most of these companies is so small as to be meaningless.)

So many campaigners take the view that most of these “independent” advisers are simply the directly or indirectly paid creatures of the fossil fuel lobby and other nasties. We might as well say it: “They are taking the piss.” And it can never be emphasised enough that these officers and advisers are meant to provide councillors with balanced, professional, and expert advice—not their personal opinions dressed up in words that often might as well be a kind of coded secret language.

Now we come to another problem that has not been so widely understood. Why shouldn’t a pension committee simply thank this lot for their advice and then formally vote to instruct them to sell all the fossil fuel shares in the fund and to provide an intelligible guide to the size and place of all the fossil fuel shares tucked away in the “products” of the Blackrocks and others. Answer: because they will put themselves at serious risk of all the consequences that flow from taking decisions without listening to “expert advice”. That’s how the law works, and our closest friends of the climate deniers know this all too well.

BUT, a pension committee can decide to appoint their own adviser—for instance, an experienced fund manager who is fully qualified AND has detailed knowledge of these complex questions from a climate emergency perspective. And if they have taken advice, they are entitled to make a decision and are protected against potential legal consequences that could lead to their financial, political, and personal ruin.

So, summarising all of the above, I have felt for a considerable time that what we had to do was to get the committee to appoint an appropriate adviser and then make a clear decision to dump ALL fossil fuel shares as soon as possible.

The committee would have a pretty strong moral/political argument as well. Is it four years now since the full Carmarthenshire Council passed an often cited motion calling for all fossil fuel shares to be sold within two years? It is not unreasonable for many campaigners to believe that this was a decision that had to be carried out.

But sadly, thanks to the Local Government Act 2000, the full council can only express opinions. It cannot bind the Executive (Cabinet.)

So what’s gone wrong?

Currently the 3 councillors on the committee are two from Plaid (including the chair) and one from Labour.

So far as one can see, Plaid, as a party, is clear that they want pension funds to divest from fossil fuels. The council motion was moved by Cllr. Rob James, who at the time was the leader of the Labour Group on the council, and supported by a Plaid councillor who is now the cabinet member for climate change.

None of the present three appear to have the will to carry out divestment. They are drowned by advice from officials and “advisers”. To be honest, it is worse than that. The chair is widely regarded as someone who doesn’t take the threat of climate change very seriously, and the other Plaid councillor has launched a public denunciation of “political pressure,” citing concerns about campaigns around various other issues, like Israel, as inappropriate pressure.

The most serious incident occurred several months ago when, during a formal meeting between the committee and divestment campaigners, the committee chair suggested to a campaigner who was simply explaining an analysis of the fund’s investments that he was purporting to be a licensed financial adviser (which he wasn’t) and rehearsed the serious legal consequences for anyone found guilty of that offence. 

That really was a frightening and shocking piece of utterly unjustified intimidation. Many, many decent campaigners could be terrified of such a threat. (And there is a whole history, not restricted to Carmarthenshire, of senior officers making such threats, referring to Codes of Conduct, the Local Government Ombudsman, and more. But for this to come from a senior elected councillor (possibly briefed by officers?) is just outrageous.

For two years, campaigners and various elected representatives have been assured that if the attitudes and performance of the Pension Committee did not show a serious intent to get on with divestment, then they would be replaced. Really, we shouldn’t wait any longer.

This is NOT an attack on Plaid from some factional motive. The Labour Party has been equally ineffective in some similar and some different ways.

But in Carmarthenshire it is Plaid running the council. As with Planning, Licencing, and Scrutiny committees, it is unlawful to “whip” councillors, but the committee places and the chair are effectively appointed by the leader of the council. (There may be a rubber stamp vote by the full council and sometimes the Leaders consult their party groups.)

A wide range of Plaid representatives have pledged their commitment to divestment, mostly in good faith, but the time has come without any further delay to ensure that the Plaid members of the Pension Committee are genuinely committed to the policies that their party has publicly supported. And it would be a significant bonus if the Labour Party did the same for their one place on the committee.

And just a footnote to Labour supporters: The Labour member on the committee was Cllr Rob James. He was serious about these matters and placed himself on the committee when he was leader of the Labour Group on the council. Cllr. James has been removed from that role as a result of being suspended by the Labour Party on grounds that strike many members as highly opaque and dubious.

Pension Funds—Part 2

The motion passed by Carmarthenshire Council and others called for the funds divested by the Dyfed Pension Fund from fossil fuels to be reinvested in local, green projects.

This is arguably even more important than the actual divestment. But it is a serious challenge. It is difficult to put pension money into risky start-ups, and very few of the well-established “green” companies are headquartered in West Wales. Furthermore, many of the firms we might want to invest in are “private”. You can’t buy shares in them. But there are usually ways of fulfilling our goal, and it would be a very good idea for the Pension Committee to appoint a qualified adviser to explore existing opportunities and to create some new ones. They might even ask some of the existing officers and advisers to do this… but don’t hold your breath.

(It would, at least, be a useful step in justifying independent external advice if the present team were unable or unwilling.)

A strong, topical project would be to find a way for the Dyfed Fund, and others, to fund a new underground cable network in West Wales configured to serve the renewable electricity generation of the present and future.

The Radnor Forest/Bute Energy current wind farm proposal would be a highly suitable case for treatment.

There are a couple of other points that should be understood about LA, and many other pension funds.

The pensions that are paid are based on each individual’s contributions over the years and are uprated by an inflation-based formula. Actuaries are able to calculate whether the fund can meet the amount that they have to pay out. If the gambling has been successful to the extent that all the pension obligations can be met, guess what happens to the “surplus”? The employers (the local authorities) give themselves a contribution holiday! i.e., the money that they had “earmarked” for the pension contributions is simply diverted into some other part of the council’s budget. It may well be that this may avert some cuts in council services—but is this really in the best interests of the pensioners? Perhaps this money could be ringfenced for a fund for local green start-ups?

It would be very useful to know the extent of this “mega-trousering” throughout Wales. We know it happened with the Flintshire budget last year or the year before.

Finally, it is quite astonishing to observe how quickly investments can be dumped when there is sufficient public outcry and pressure from the great and the good. The long-overdue divestment from Russian oligarchs when Putin invaded Ukraine was remarkable.

The Welsh Government and the local authorities could invest many billions of pounds into a profound and quite rapid transition to a far more green and just society. This is a Magic Money Tree waiting to be picked.

Question: Can some serious “expert” out there explain why this can’t be done?

(Council Monitoring Officers shouldn’t bother ! )