The pensions time bomb
Sir Brian Souter believes in rewarding loyal employees with a decent pension – but to ensure this happens current trends need to be revised.
As a young bus conductor I was shocked to discover a driver, who had worked for 51 years at Alexander’s bus company, was retiring with the princely sum of £50.
This was collected from his workmates, while the company gave him a gold watch in return for a lifetime of service. This made a lasting impact on me, and I have since been a firm believer that when someone has shown such loyalty to an industry they deserve in return to have some form of provision for their retirement. As an employer I have always tried to provide decent pension arrangements for my own staff.
Originally I was a trustee of the Stagecoach pension fund, but I felt this could give rise to a conflict of interest. I had my own definition of “ethical investments”, which at times could be at odds with the wider duties of trustees. The funds were invested solely for the maximum benefit of the workers and so I left the role to my then Finance Director, Derek Scott, who has since specialised in this area.
I am pleased to say that over many years those trustees have kept on investing using sound investment principles and avoiding the latest trends, including not following the herd with the current approach of over-prioritising in gilts and bonds.
Instead their more balanced approach has resulted in stable compounding returns delivering around 10% per annum (net) since inception in 1995, outperforming many apparently more sophisticated funds.
I believe the time has come to question why and how we can rectify some of these challenges.
As defined benefit schemes have closed down, I have been dismayed to observe the continued use of bonds to measure the adequacy and value of the schemes. Although this may have been right at the time of its introduction, this form of measurement has now become a bind as quantative easing brought about artificially low yields, with the resulting enormous pension fund deficits.
This has been compounded by the so called “flight to safety” by pension funds buying even more gilts and bonds and making their performances even worse.
I believe the time has come to question why and how we can rectify some of these challenges. In words that have been attributed to Albert Einstein, “The definition of insanity is doing something over and over again and expecting a different result.”
We also need to revisit the approach of future pension provision for our young people, and I hope my article, "Breaking the bonds", will help to generate debate on this important issue.