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Smash Capitalism - But Not Yet? by Zoe Fairbairns

Smash Capitalism - But Not Yet? by Zoë Fairbairns

4th May 2005

The government has announced plans to improve worker representation on boards of company pension schemes. This provides a fine opportunity for old lefties - not to mention new ones - to do our bit for pension rights, and tie ourselves in ideological knots at the same time.

Here's how it works. All company pensions funds are managed by trustees - individuals who hold the money on the members' behalf, separately from the company. At the moment, up to two thirds of the trustees can be appointed by the employer, with only one third chosen by the workforce. But this proportion is soon to change to 50-50, and many new positions for member nominated trustees, or MNTs, will be created.

After four years as an MNT myself, I can confirm that although it doesn't do much for your social life (say "pensions" at most parties and watch people back away) it does provide an educational opportunity to look the capitalist beast in the face and find out in a very practical way how it works.

Before you decide, you might like to get hold of the booklet Pension Fund Trustees, published by the government's pensions watchdog the Occupational Pensions Regulatory Authority, OPRA. You can download the booklet free from www.opra.gov.uk or request it from OPRA at Invicta House, Trafalgar Place, Brighton, East Sussex, BN1 4DW.

Pension Fund Trustees is written in clear, accessible language, designed to leave you in no doubt over what you are letting yourself in for: "As a pension scheme trustee, you hold assets for the benefit of others. The members of the scheme have placed their trust in you to look after the financial assets that will provide their pensions and other benefits. You have a basic duty to act prudently, conscientiously and honestly."

Well, that sounds all right; you know you are a prudent, conscientious and honest person, with no plans to embezzle your colleagues' retirement savings. But look at what you do have to do: make sure everyone (including your employer) pays their contributions in full and on time, bank the money, decide and operate the scheme's investment policy, pay out the pensions when they fall due, allocate survivor benefits when someone dies, appoint auditors, actuaries, and fund managers and work with them, negotiate with tax inspectors, obey the complex and ever-changing laws that surround pensions, and remember, says OPRA, "if something goes wrong, you could be personally liable?We can fine you if we believe you have not kept within the law."

Still interested? OPRA hopes so; after all, somebody's got to do it: "We hope that this guide ?will help make being a trustee a fulfilling and enjoyable experience." And you have a nice day too.

Actually, it's not quite as bad as it sounds. You get to go on a training course (at your employer's expense and in company time) at which you will be initiated into the mysteries of financial risk management and the law of trusteeship. Workshops and role-plays will give you the chance to engage with such nightmare scenarios as your actuary telling you there isn't enough money in your fund to pay pensions, or a member claiming that a chunk of his or her entitlement has gone missing.

During lunch you will encounter other bemused trainee trustees and can commiserate with them over copies of another OPRA publication, the panicky-sounding I'm A Pension Scheme Trustee - What Do I Have To Do?

What you mostly have to do is read indigestible documents and go to meetings. Unless your company and its pension scheme are so large that they have all the expertise they need in-house, you will probably use outside specialists to deal with the day-to-day accounting, paperwork and compliance issues. The trustees' role is to make sure all this is being done properly - and take the blame if it isn't.

So far, so bureaucratic. It's when you meet your fund managers that the ideological knots start to twist and tighten. These are the people that your Marxist study group has warned you about - the ones who move billions of pounds around the world at the click of a mouse in a ceaseless search for profit. Some of that money is your pension and that of your workmates.

Remember all those arguments against globalisation - harmful industries like tobacco, armaments and powdered baby milk spreading their tentacles into the third world? Big companies building sweatshops in low wage economies to produce goods that can be sold where wages are higher? Ruthless corporations leaning on governments to liberalise trading laws? Now you have to sit and listen to a fund manager, employed by you, explaining why these are the very qualities (flexibility, firm management, responsiveness to consumer demand, ability to influence government) that make these companies attractive investments for your pension scheme.

So what about ethical investment, I hear you ask. Cannot trustees require fund managers to invest the workers' money for the benefit of other workers, for peace, for the earth?

Of course they can. The trustees are in charge, not the fund managers. The fund managers are just the hired help. But both have to keep within the law, which says that anyone who manages another person's money, must always act in the financial best interests of the money's owner - in this case the members of your pension scheme. So, says OPRA, "when you decide on the investment strategy for the scheme, you should put aside your personal views on the ethical aspects of particular investments and get the best financial return that is achievable at the desired level of security or risk."

Even if you dislike as much as I do being instructed by a government watchdog in what you should do with your "personal views", you have to admit that OPRA has a point. If trustees start telling their fund managers that they can't invest in this or that, solely on ethical grounds and without regard for potential profit, the fund managers' reaction may be, "If we're not allowed to put the money where we believe the profits lie, we may not achieve the returns that you need to pay your members the pensions they need and deserve."

Forget being a trustee for a moment, and look at it from the point of view of an ordinary member of the scheme. Imagine being told that the value of your fund has fallen, thus reducing your expected pension; or, in the case of a final-salary schemes, that the only way to hang on to your supposedly-guaranteed pension will be to increase your contributions. You protest - only to be told that your trustees have taken a principled stand on armaments (or tobacco, or pornography, or sweatshops), disinvested from the guilty companies and put the money instead instead into socially-useful industries. Unfortunately, the trustees continue, organic potatoes have proved less profitable than ground-to-air missiles - hence the collapse of your pension fund. Would that be OK with you?

Maybe it would, in which case good for you - you have a right to your principles, particularly if you are willing to pay for them. But if you become a trustee, you won't have a right to impose those principles, and the associated costs and risks, on other people.

This is not to say that ethical investments are always less profitable than the other kind. There may well be circumstances in which organic potatoes will generate a better return than missiles. But if that happens, investing in organic potatoes need not be an ethical position; it could be a good old-fashioned market-driven one. Everyone will pile in, ethical or not. Later, when the potatoes collapse and another war breaks out, the profit-driven investors can move on to the arms industry; ethical investors who have taken a stand against the arms industry can't. Non-ethical investors are not disbarred from investing ethically when it suits them; ethical investors, on the other hand, may disbar themselves from some sources of profit. It follows that non-ethical investors will always have more room for manoeuvre and more opportunity to spread their risk - the risk that they are taking with their workmates' money.

A trustee's hands are not completely tied. Indeed, it is one of the ironies of the situation that although you are not allowed to make investment decisions on the basis of social responsibility alone, you are required to have a policy on socially responsible investment (SRI), and to state publicly what it is.

Some schemes deal with this conundrum by having a policy of no policy. Others simply state that their main social responsibility is to ensure that their members get the pensions they have been promised. You can't argue with that. What you can do, as a board of trustees, is to use your position as a shareholder to "engage" with the companies you invest in - that is, try to get them to change policies or practices that you think might, because they are socially irresponsible, reduce profitability. Pollution may lead to fines and clean-up costs; bad employment policies may mean the loss of good workers; awarding huge salaries to senior executives may generate bad publicity. By paying attention to this sort of risk, trustees seek to combine social responsibility with their compulsory pursuit of profit.

Trouble is, unless yours is a very large fund indeed, the scale of your influence will be minuscule, and unless you or your fellow trustees are experts on fund management, you will probably have delegated your votes to your professional fund manager, who probably represents many funds as well as yours. But you can put pressure on fund managers to vote in particular ways. You can get together with like-minded trustees on other funds via the TUC Trustees Network (www.tuc.org.uk). And you can get background briefings on the sorts of issues you could be pursuing, from Just Pensions (www.justpensions.org) or the UK Social Investment Forum. (www.uksif.org)

Even this cautious approach has its limitations. If your main quarrel with a company is that it makes excessive profits, there's not much point in "engaging" with them about that; profits are what you, as a trustee, are looking for. And the Campaign Against the Arms Trade (www.caat.org.uk) launching its Clean Investment campaign recently, pointed out the limitations of engaging with a company when the very thing you are objecting to is the thing it makes. "'Engagement' alone is hopeless where a company's product is the fundamental problem," says CAAT. "The arms trade is not a normal, legitimate business and should not be treated as if it is."

After four years as an MNT, I resigned. I would like to be able to tell you that this was because I could no longer tolerate being expected to think and act like a capitalist, but that wouldn't be true. On the contrary, I had entered fully into the spirit of the thing, rejoicing when the FTSE went up and worrying when one of "our" companies got into trouble. I left following a disagreement with my fellow trustees over the level of risk we were taking in our investment policy, which is the sort of dilemma capitalists wrestle with all the time. In short, I had become one of them. Being a pensions trustee does that to you.

Maybe it won't do it to you. With 20% of all UK institutional investment coming from pension schemes, an anti-capitalist pension sounds like a contradiction in terms. But what about a moderately-critical-of-capitalism one? You too can be a trustee; watch out for vacancies in your workplace. The government pensions watchdog hopes you will enjoy it, and so do I.

Zoë Fairbairns is an author and a feminist. Her publications include How Do You Pronounce Nulliparous?, Saying What We Want: Women's Demands in the Feminist Seventies and Now, The Feminist Seventies & Benefits