Martin Mannion, the Investment Council chairman at the National Association of Pension Funds (NAPF) opened the industry body's annual investment conference in Edinburgh today, and criticised the UK Government for not doing enough to save workplace pensions.

Speaking  to a room full of investment managers and pension schemes the Chairman said  that the Government was expecting them to steer the economy back on course with their investments and governance practices – but was not doing much in return to save defined benefit (DB) schemes, in particular.

"During the banking crisis it was our role as investors. We were told by government that we were absentee owners. And we were told that we must take our duties as the guardians of UK companies, and the moral guardians of UK capitalism, more seriously," Mannion said.

"Well, we've never accepted the view that we were irresponsible owners. But, we have raised our game nonetheless by getting schemes to sign up to the Stewardship Code."

He singled out the Government's Quantitative Easing (QE) measures and falling interest rates as "bad news for pensions and pensioners".

"There can be no denying that QE has a negative impact on pension schemes. It is estimated by the Bank of England that QE1 – the first £200bn of asset purchases – pushed down gilt yields by around 100bp, which would have increased liabilities by 20% compared to early 2009," Mannion said.

"This round of QE is likely to have equally damaging effects. These are real issues for schemes, especially those undergoing their valuations right now."

Mannion said that this was a particular difficult period for schemes which could be seen by looking at the current DB market; at the start of the financial crisis 28% of DB schemes in the private sector were open to new members, compared to today when the figure stands at 19%.

With interest rates at a new low and no real growth predicted in the near future there was a fear that this was becoming "the new normal", which means an unsustainable future for any DB schemes or the annuity market.

Schemes responsible for banker's bonuses?

Mannion's comments come at a time when the Government is under scrutiny for asking pension funds to invest in infrastructure projects on the wrong terms and asking them to deal with the current  'excessive' bonus structures in the City, leaving many to wonder whether schemes are even the right parties to tackle inflated remuneration packages. 

However, touching upon this subject the chairman said: "At a time when the wages at the bottom are under pressure, excessive bonuses and remuneration at the top must be reined in. That is why we will write once again to the Chairmen of FTSE 350 companies urging them to exercise restraint in setting pay and bonuses this year."

Infrastructure investing on the right terms

When it comes to the government's infrastructure plans, which the Chancellor last November announced with "British pension funds for British infrastructure," the NAPF will announce some of the plans it made together with the Pensions Protection Fund and  the Treasury on Friday, Mannion said. The idea of the cooperation is to create an infrastructure platform to enable pension funds to invest efficiently in the asset class.

"In the face of maturing liabilities, infrastructure should be an ideal asset for pension funds, giving us what we want – steady, lower risk, inflation-linked returns. Infrastructure should be able to fill the gap left by gilts – both arising from current low yields and a general shortage of linkers.

"But," Mannion said, "that hasn't been the case to date due to three reasons". The first, he said, was the small scale of the market, followed by the fact that overseas funds are not fettered by our gilt-based accounting and funding rules, and thirdly, he said it was also due to, "pension funds finding that infrastructure investment is too highly leveraged - squeezing out that all-important inflation hedging that UK funds so badly need - and is simply not structured in funds' interests and comes at too high a cost".

azeevalkink@wilmington.co.uk