Council invests in arms manufacturers
We've just spotted an interesting little article in last weeks Mercury. Apparently, Greenwich Council's pension fund has holdings in two UK based arms companies, two US companies and one in continental Europe, to the value of £8.6m. We wonder if any of them were Vosper Thornycroft?
posted by greenwich.watch at 9:39 am
13 Comments:
It is worse than that. As of December 2005, the LBG had £3 million invested in shareholdings in Halliburton (Kellogg Brown Root is a wholly-owned subsidiary of Halliburton). That is, Dick Cheney's Halliburton; the same Halliburton/KBR that got all the no-bid contracts in the so-called reconstruction of Iraq; the same Halliburton that has been accused by the US military of human trafficking in Iraq (cf report in Chicago Tribune) and by everyone else of millions of dollars of corruption.
Yes, the value of Halliburton's shares have risen something like 600 per cent in the last three years (unsurprisingingly) but how do the Muslim employees of the Council feel about benefiting (through their pension arrangements) from the misery of their brothers in Iraq? We don't know because they probably don't know.
Following a formal complaint in mid-May to a Peninsula Ward councillor, Councillor Norman Adams was asked to look at the Council's pension investments.
Yeah, perish the thought that the pension scheme might actually be allowed to invest in assets that make a return. Let's stick it all in the building society or under the mattress and force Council Tax payers to make good the difference. It'll mean £4,000 bills for every household, but it'll be worth it to avoid the risk of possibly offending someone.
Investing in Halliburton sounds like shrewed investment on the part of the fund managers to us. After all, it's the fund managers, not the Council, that make investment decisions, and they do so in the interests of the fund, not the ethics of the Greenwich council taxpayer (quite rightly in our view).
There are many ethical managed funds that refuse to invest in this type of thing. In addition to this all managed funds publish a list of investment types, so its hard to believe that no one knew where the money was going. All that said most ethical funds make less than the so called 'Tits and Guns' funds so it all depends on how strong your beliefs are, obviously people like Nairobi and the financial directors at GBC believe its ok to make money from the suffering of others.
According to that CAAT document (link above) obtained under the Freedom of Information Act, Bexley and Lewisham somehow manage not to invest their pension funds in US arms sales companies. Greenwich is very NuLab, of course.
Have you taken a look at the pension disclosure in the Council's accounts? The deficit, on an FRS 17 basis, is absolutely enormous. The Council believes this will all sort of come out in the wash, but if it doesn't, we will be facing staggering bills just to make good the shortfall. The deficit in 2005 was over four times the annual CT take (interesting to see where it has moved to in 2006... accounts due out any moment now). By all means, stick your head in the sand, but arguing about niceties about should-we-invest-in-that-rather-unsavoury-company-that-might-offend-a-few-hippies is a luxury we can't afford. And every company offends someone, so don't get all high and mighty.
I am far more interested in WHY there is a deficit in the pension area of the Council's accounts. Four times the annual income from Council Tax - has anyone got time to look back and see when that started to appear? Any sign of, er, borrowing from Peter to pay Paul?
Indigo, it appeared as a result of the introduction of FRS 17, which forced employers to value the assets and liabilities of the fund at today's market values and report the difference as a surplus or deficit on the balance sheet. The Council first adopted FRS 17 about 3-4 years ago, and the position has got progressively worse ever since. This is due to a few factors:
1) Sogginess in global equity markets - means the fund's assets have gone down.
2) Wage inflation being above previous assumptions - means the fund's liabilities have gone up.
3) Low interest rates and changes to previous assumptions about what the 'discount rate' for measuring future payments should be - means the fund's liabilities have gone up.
Also, it's worth noting that the Council doesn't actually _have_ to make good this money now. It doesn't have to realise its liabilities at today's market value - the fund can pay cash out to pensioners on an ongoing basis. The 'real' liability is, in all likelihood, going to be less than the 'market value' liability. But by how much is anyone's guess.
Of course, the trend can hardly be good news for today's Council Tax payers.
This needs to be widely discussed, eg in The Mercury or Newsshopper, I feel. Some Council Tax payers might like this sort of information explained in order to help them decide when to move house, perhaps earlier than hitherto planned, before any hike in CT makes it difficult to sell their properties. And people thinking to take advantage of the Right To Buy leasehold properties from the Council might decide to hang onto their savings instead, given the way Council service charges have gone through the roof in some places recently.
I suppose that the investment market could get worse. I know nothing about fund management but I hope that there is no danger of Council employees' pension expectations experiencing anything like the disappointment of the Daily Mirror employees.
According to the 2005-06 Statement of Accounts (Page 50), pension fund net liability fell slightly to £279.8 million from £282.4 million in 2004-05.
I'm trying to establish whether this is a particularly Greenwich issue, Lewisham's gross assets seem slightly lower than ours but I can't find anything about liabilities in their latest accounts.
Meetings of the Pension Fund Scrutiny Panel are open to press and public and attendees may speak with the leave of the chairman. There was a meeting earlier today (27th July) and provisional dates for the rest of the year (9.30am in the Town Hall) are 5th October, 4th January and 22nd March. The officer contact is David Bays on 8921-5176.
The councillors on the Panel are Norman Adams (chair), Mick Hayes, Terry Hales, John Kelly and Peter King. They are meant to be selected for having some knowledge of the subject and receive training.
Paul - thanks a lot for this, it's very helpful.
The fall in liability should be put into context - the FTSE 100 has soared in the last year by about a quarter, so one might have expected a significantly better improvement than a few odd million quid. If the best stockmarket result in recent memory only translates into a £3 million improvement, then it would seem axiomatic that taxpayers will be forced to contribute more before too long. But, hey, I'm not an expert like the learned Councillors you mention.
I seem to recall that Lewisham was the Council that, almost uniquely, bailed out of equities in 2001 and therefore avoided the worst of the stockmarket collapse. I haven't looked at their accounts (doesn't matter to me as I don't live there) so I can't be sure.
Thank you for this, Paul. I will put those dates in my diary, in case I am able to attend. Perhaps the mosque Imam would like to know about these dates and the brief of the scrutiny panel. Certainly, his is an important "constituency". Halliburton/KBG may well be "reconstructing" - on a no-bid contract, natch - Iran by next year. As things are going, they won't have finished reconstructing Iraq by then, though. And millions of Muslims are very energised about all that.
When the next 9/11 or 7/7 or whatever happens, don't ask why.
The following comes from the original article, in case people didn't see it:
The figures from December 2005 apparently show that Greenwich councillors, council workers and taxpayers have contributed £8.6million to arms companies across the globe through their pension funds. The figure for Lewisham is more than £7million.
This is, I'm afraid, complete and utter bollocks.
First of all, the pension fund is a separate legal entity to councillors, council workers and taxpayers. Contributions go into the fund, and the fund then decides where to invest them. It's plain wrong to view this as contributions direct from those who contribute to the scheme (do Greenwich Councillors even get a pension as part of their remuneration? I thought not)
Secondly it's completely wrong to view investment in these companies as a contribution to those companies. The Greenwich and Lewisham pension funds will have bought shares in these companies in the open market. That means they will have bought shares already owned by somebody else. That individual will have received the cash, not the company. Even if the shares happened to be new issues (which I doubt), it's disingenuous to view it as a 'contribution' as the fund receives shares in return and with them a stake in the future prosperity of the company.
So there you go.
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