Labour has no right to preach over pensions

THE starting pistol was fired two years ago when Paul Myners, the former head of investment manager Gartmore, set out a programme for radical reform of the pension fund industry.

Last week, with the City still in the starting blocks, Ruth Kelly, the Financial Secretary to the Treasury, waved the big stick and warned that unless all those in the pensions industry set off round the track, the Government would consider legislation.

In her speech to senior players in the world of investments, she lambasted the City for its shorttermism and its failure to ensure that pension fund trustees know what they are talking about.

She also hit out at the unenthusiastic way in which professional investors have taken on managements on issues such as top executive pay after the Government was good enough to give them the chance to vote, though I doubt the likes of Jean-Pierre Garnier at Glaxo would agree.

Readers of Financial Mail will be well aware of the failures of the pensions industry. Companies have been closing defined benefit funds. What were once platinum-encrusted savings schemes have developed gaping deficits and many of us face the unalluring prospect of working until our decrepitude if we are to have any income to retire on.

Myners made some very sensible recommendations for trying to improve the way the pensions machinery works. Not least of them was the need to tackle the dominance of the handful of consultants who have a stranglehold on advising on everything from the way in which funds allocate their assets and the firms they pick to manage their money.

But it sticks in the craw to hear Kelly drone on about whether there is something 'inherently short-termist in the City' when this Government has so signally failed to address the pensions crisis now engulfing Britain.

LET'S not forget that one of Gordon Brown's first decisions when he arrived at the Treasury was to axe £5 billion a year of credits for pension funds - a blow from which the industry is still suffering and which has contributed in no small measure to the deficits threatening so many final salary schemes.

For the sake of a few hundred million, this Government is also perpetuating the iniquity that could condemn thousands of employees whose company schemes have been put into wind-up to next to nothing after a lifetime of toil.

And crucially, for all its fine words, absolutely nothing has been done to tackle the fundamental problem of how to encourage people to start saving for their old age. Kelly can threaten all she likes until she gets the changes she wants, but until her masters address this issue, it will be little more than window dressing.

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NOTHING is more likely to raise suspicions that the Financial Services Authority is on the right track than the sight of most people in the City howling their objections. This is the response that has greeted the FSA's planned reform of the way fund managers charge their clients.

The FSA is suggesting that charges should become more transparent, the costs of buying research will not be bundled into an overall fee and so-called 'soft commissions', where brokers pay for fund managers Reuters' and Bloomberg screens, will become a thing of the past.

The amounts involved sound enormous. The FSA reckons fund managers charge their customers for about £2.3 billion of commissions each year.

Only two thirds of this is for buying and selling shares. But these sums are tiny compared with other transaction costs such as stamp duty. And although much of the research pumped out by well-paid City analysts is not worth the paper it is printed on, it is highly unlikely that active fund managers will want to survive without research at all.

Even if they do not chose to buy so much research - presumably paying top dollar - from the big investment banks, the alternative will be to strengthen their own in-house teams. And that will cost.

It may be all very well for investment houses to argue that their professional customers understand the way in which all these charges work, but many of their clients are less sophisticated dealers and deserve to know and have a say over where their money goes.

However, it would be wrong to imagine there are huge savings to be made here.

Cutting out a lot of the overenthusiastic share dealing which currently takes place would have far more impact. But nothing would benefit investors' wallets more than a couple of points of outperformance by a fund management sector that has conspicuously failed to deliver many favours to its customers in recent years.