States staff pension pot loses £255m.
Thursday 30th October 2008, 2:30PM GMT.
THE States employees’ pension pot has plummeted in value by £254.9m. in the last 10 months.
Stock market turmoil has seen the value of the superannuation fund, which at the end of December stood at £896.4m., fall to £641.5m. at the beginning of this week.
Treasury minister Charles Parkinson (pictured) revealed the figures after being questioned in the House yesterday by Deputy David De Lisle.
Earlier this month Treasury had refused to release the figures after a request by the Guernsey Press. It said it would do so in its quarterly report.
Deputy Parkinson said that advice had been sought in June as to whether the fund’s exposure to equities should be reduced, but it was not thought then that it was a good time to do so.
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Mr Parkinson
Who made this decision to leave the funds exposed to equities in june. GFSC or Deputy Trott?
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It wouldn’t be GFSC, they are the commission and operate as an advisory capacity / regulatory role only.
Dep Trott might consult them, but I imagine he made the decision, or failing that, someone under his management did – in any case he is the ‘CEO’ of the States in effect.
I imagine it’s probably half equities and half aggressive investing; the States probably had a 50/50 safe v risky investment portfolio or thereabouts.
In any case, not good. . . .
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It would be interesting to know the exact details of the advice given to Treasuries by their ‘Advisors’ way back in June.In particular as to why they thought that equity markets could not reduce(or collapse) in the manner that they did! Take a look at a weekly/monthly chart of the Dow or Footsie and even a novice of technicals could tell you which way the market was likely to go!
The demise of the pension fund will always be seen as a £255m-plus loss because the fund should have been exited from equities as the markets dictated!(And re-entered with £900m plus to invest)!
Obviously Treasury took their ‘Experts’ advice!
How are these advisors paid for their services?
Are they paid on ‘commission’ for results (but only in one direction)? Was not our Northern Rock ‘limited’ loss an early warning?
Is it a case of “Everyone one is an expert in a Bull Market”?
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I totally agree with the comment ‘everyone is an expert in a bull market’. When the stock markets are going up and up it’s difficult to be wrong. It’s only in situations such as we are now in that sorts the good from the bad.
Yet, what everyone seems to forget is that the so called advisors for the States will, no doubt, be paid a ‘management fee’ for their advice – good or bad. This means that it is beneficial that the pension fund remains with them as they will continue to receive this fee each year despite whether the fund prospers or not. No wonder they don’t want the States to get out.
No advisor will ever be paid solely on a performance basis as they will say that they cannot guarantee what will happen in the markets.
However anyone with even the most basic knowledge of the stock markets would have known that something was afoot back in February 2007 with the emergence of the sub-prime problems in the US. This should have set alarm bells ringing and ensured extra viligence from the advisors with regards to funds and assets under management. The States obviously trusted these people and for them not to suggest that States should be moving the pension fund into safer markets is negligent. They should have been advising the States to move large sections of this to bonds or cash assets between August and November 2007. Even a non-professional in the finance markets, like myself, can spot this one. So why was this only questioned in June 2008. Even then it would have been better to get out at this time rather than leave the fund as it was. One can only ask, ‘who was advising the States’ and shouldn’t they be held accountable in some form or other?
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Why should the advisors be accountable?
The people running the States make the decisions – they should be educated enough to know what they are going; they have delegated authority.
They chose the path.
If someone advised me to jump off a tall building I would consider their advice but I wouldn’t follow it. . .
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The States staff pension pot has just lost £255 million due to the current financial crisis and I understand that it has been decided that the loss will be made good from taxpayers contributions. I often hear during this financial crisis that we are all in the same boat. I can only assume that States staff are in a different boat to me. I like many others have contributed long and hard to a private pension scheme, which I fear is now not worth what I expected it to be. The States were strongly advising us to set up these pension funds at the time. The point is, whilst I don’t expect these people to fare worse than anyone else. Why should they expect to be immune from the current problems. Should we feel good, whilst experiencing reduced incomes ourselves that we are expected to make good States staff pensions. Yours sincerely. Derek Birch.
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Darren rest assured that if any States Members knew for sure what the markets would do in advance then I think it in unlikely that they would be working for a Deputy’s salary !
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How can something like this be allowed to happen in what is supposedly a leading finance centre?
This is yet another classic example of total incompetence by our government and/or their so called advisors – I wouldn’t trust them with contents of my two year olds piggy bank!!
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Shares go up as well as go down. and they clearly weren’t the only ones to lost money in the recent financial crisis.
all of you saying that ‘anyone could have seen this coming’ clearly aren’t that clued up themselves as no-one can accurately predict what is going to happen. the crash could easily not have happened as money wouldnt have been lost.
if they had chosen to put all the funds into ‘safe’ bets then you would probably be moaning that they werent investing it wisely enough and the return wasn’t as good.
i would be surprised is anyone’s portfolio has gone up over the past few months.
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bob
What utter rubbish you write. Please read the the whole story and come back and comment again! 254.9 million was wiped out in 10 months. Whoever was keeping their eye on this investment, if anobody was at all, needs to be named and shamed and then sacked. We are all missing the point. This money should have been reinvested elsewhere the moment it started to show a decline. The best part of a third wiped out in less that a year? How can this be? Who is responsible for the decision making locally for this error? Obviously the markets have a part to play but the actual blame rests with someone? We all need to know who and the sooner the better. It seems as though that it was probably a case of our politicians were elsewhere when this was going on but their efforts were on concentrating on high net worth individuals whilst our own money was losing the best part of 1 million per day. This is another stone cold fact that our people in power are nothing other that a bunch of incompetent clowns. When are we going to all learn. Probably when it is far too late. Nobody seems to want people on this island to ask the all important question of who is accountable rather puting it down to being just another one of those things. If any LG depositors have been hit with this then it is just another kick in the teeth by our government. Maybe the politicians will arm themselves with guns and knives and mug us next, to raise extra revenue.
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The panic over the fall in value of the States pension fund is unfounded. The £254.9 fall in value is dramatic but would only be relevant if these were short term investments – which they are not.
All pensions schemes, be they defined benefit schemes (e.g. the States’ scheme)or defined contribution schemes (e.g. most private pensions) are primarily invested in the stock market. Historically this has always provided a much better long term return than cash.
When the stock market takes a dive then, obviously, the value of the pension fund will fall – it has happened before and it will happen again. When things improve the value of the pension fund will recover, just as it has in the past.
The key point to remember is that pension funds invest for the long term. States employees are lucky enough to have a guaranteed pension when they retire so they are not losing anything. The States pension fund will recover in the long term so there is no real loss to the taxpayer either.
The States will presumably keep contributing to the fund and those contributions will be invested in the stock market now, when the price of stocks is extremely low. When the market recovers those investments will increase in value commensurately. The large gains that will be made will thus help offset current losses.
It is those who have private pensions and are due to retire in the near future who are most at risk. They will probably be obliged to cash in their pensions at a time when the value of their benefits has fallen dramatically and they will therefore receive a much lower than expected income for the rest of their lives.
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I can’t see how Paul can call Bob’s post “utter rubbish” Not even rubbish let alone utter rubbish.
What is more appropriate is that Paul is saying that someone should have seen the problem unfold and acted earlier.
Is this the same Paul who has defended the Landsbanki Guernsey depositors. Suely, most of the LG depositors, and I speak here of those with signifiant deposits; should have seen the writing on the wall?
One rule for one and one for the other?
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CD has got it absolutely right.
It never ceases to amaze me how much indignant rubbish obviously clueless people like Paul spout about things like this.
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£254.9m in 10 months, the majority of which I imagine was in the past 3 months.
and there has to be a certain amount of risk involved otherwise pensions would not grow in value.
As CD said, pensions are long term investments. obviously they possibly should have looked at those coming up to pension age and changed their portfolio to something safer, but the majority of the pension fund is likely to be invested for the long term 20-30 years.
those people who are 30 now shouldn’t care one bit about how much their pension is worth now as equities are likely to increase in value over time. in fact, depending on how the money is invested, drops in value are even better as it means more units can be bought for the same amount of money (pound cost averaging).
i doubt the states had all the money in equities and had safer investments for those that are coming up to pensionable age.
a lot of bother over not a lot if you ask me.
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David – thanks for your post.
Pensions have been on the decline for decades and have never shown any chance of an upward curve.
It looks to me a though the States have gone for an aggressive strategy with the money in risky funds (you can have maneaged low/medium/high risk funds – put simply).
I suspect a few desperate decisions were made in order to try and bring in further income on the 800million, however by taking more risk you stand to lose a lot more.
I don’t think what they earn as a Deputy is relevant David – they have the delegations, they made the decisions. You would have to be very operationally or strategically wet behind the ears to invest in aggressive markets, especially as others have commented, with markets and financiers going down over the last 18 months.
They would have been more secure in placing the funds in a simple interest earning account with guarantees – say HM Treasury.
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If they did as Darren suggests then the fund wouldn’t have even kept up with inflation over the long-term.
It is a long-term fund designed to grow over a lengthy period of time to provide a retirement income. In the long-term the best strategy historically (including over the Great Depression of 1929)has been to remain invested in equities and continue to purchase them as the markets decline. Trying to time the market by selling equities when they begin to fall and moving into less volatile assets may sound like the obvious thing to do, but it doesn’t quite work like that.
The armchair experts views would result in a pension fund unable to fulfil it’s purpose over the term that it is designed to.
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George
Are you suggesting that small gains at a time of uncertainity are not preferable to significant losses then? You claim I am clueless take a read over your above comments!
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Thanks George, that may be the case, however it would still be above 800m and not 600m…….
What else can I possibly say
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When I was in the States I campaigned for a Public Accounts Committee. Here is a classic example of why they are needed. This situation needs to be investigated by them.
Tony Webber
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Tony – interesting point you make.
The failing is Dave Clarke and Lyndon Trott both chose to do away with effective internal controls of financial expenditure.
In 2004 there was an internal audit team of Internal Audit Director, Manager, 2 seniors and several auditors.
These people would conduct internal audit as internal audit do (financial, value for money, capital etc etc).
In 2008 there is NO AUDIT function for the States.
This was down to Dave Clarke and Dep Trott deciding that the value of having an internal Audit function was of no value whatsoever.
I did not sit on meetings however it is clear that if you do not monitor expenditure, strategic decision making (including expenditure of taxpayer funds et al) then there is going to be a chatostrophic failure.
There is no one qualified (IIA, MIIA) in an internal audit capacity who can challenge management decisions or controls.
The States of Guernsey has been run to a skeleton of what was once a healthy human being by cuts in all the wrong places.
Cuts had to be made, but so many were done with such short sightedness it is hard to fathom.
How can you appoint the PAC if they have no detailed internal audit reports to assess????
I know – appoint an external consultant at massive expense, that is what the States normally do…….
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