Pension reform runs risk of becoming new mis-selling scandal

The Financial Conduct Authority is getting increasingly twitchy about the Chancellor’s pension reforms, and with good reason.

The decision by George Osborne to allow people to invest their pension funds as they choose, as opposed to being forced to buy an annuity, is not a bad one. The annuity is an outdated product that has offered a poor return for years, providing real value only to the shareholders of life insurance companies. Reform was long overdue.

What little infrastructure there is to cope with the new landscape is untested and this is causing the FCA the sort of headache that even a lorry full of tramadol won’t cure.

It identified pensions as a key risk last year. This year it could be forgiven for headlining the section devoted to them in its business plan “disaster waiting to happen”.

The watchdog would like people to get advice. The trouble is it isn’t really sure who’s going to provide good advice at a sensible cost. Throw in an industry keen to replace the revenues lost through the rapid shrinkage of its annuity business and a habit of putting profit before good consumer outcomes and you have a real problem.

The regulator’s response? A promise to review how things are going, and repeat its warnings for the industry to behave itself.

The FCA doesn’t really want to admit that it basically has little option but to cross its fingers and hope things don’t work out too badly when the dust has settled.

Unfortunately, it’s well aware that it could be left cleaning up after the mother of all mis-selling scandals in a couple of years’ time.

The vultures are have been circling Tesco for some time, periodically diving to peck at the reeling retailer.

The US law firm Scott + Scott is behind the latest assault, having announced that it is seeking institutions in the UK and Europe to join a lawsuit similar to the one it has already launched in the US.

You probably know the basics, because we’ve seen this sort of thing with other companies that have mucked things up in the past. The law firm claims that the accounting irregularities that emerged at Tesco last year have resulted in a “permanent destruction of value” for investors in its shares at the time, and is asking for billions in compensation (and a nice fat fee).

If this thing ever gets to court you will have, in effect, one set of shareholders (those in the shares when they sank) suing another set of shareholders (those currently invested), because it’s shareholders who will foot the bill for any settlement plus the attendant legal costs, which will be substantial.

If that sounds ridiculous, it’s because it is. But, then, this sort of lawsuit is the inevitable consequence of a deeply flawed system.

The institutions, pension funds and the like that the law firm is seeking to draw in might appear to have good reason to feel aggrieved. They were let down by the over-paid executives who created the mess. They were also let down by the non-executives who were supposed to supervise them but appear to have been more interested in picking up a fee, a nice lunch and a tour of the shiny new corporate jets in Tesco’s fleet when they should have been touring Tesco’s dowdier stores.

But they were also let down by themselves. If they had put more pressure on those directors, if they had engaged more forcefully with Tesco when it was beginning its long slide, then the accounting irregularities might not have happened in the first place.

They really have only themselves to blame. But that’s not a message they like the idea of taking to the checkout. So Scott + Scott should generate plenty of business.

Today’s report into women in the boardroom says that the number of female directors has doubled. Looks good doesn’t it?

No need for any of those quotas that have had such an impact in places like Scandinavia. The voluntary approach works!

Except that it doesn’t. The problem is that if a very small number doubles you’re still left with a small number. And as a number of commentators are pointing out, the improvement, such as it is, has largely come in the ranks of non-executive directors. Too many nominations committees have seen the way the wind is blowing and hired head hunters with a brief to find a female for them. Once their token is in place – and I’m sorry but that’s what has been going on – they think they can go back to sleep.

This is not good enough. The number of female executives is still pitiful. So, for that matter, is the number of minority executives. And as for the number of disabled executives? Please.

Sadly, business remains a white males only club. In the modern world, that is unacceptable. There is nothing to celebrate here. Nothing at all.