Speeches by Garnier.

“Q Could you expand a little on the technicalities of how that would work? Obviously, the trustees are there to represent the members, but they are merely a small board of individuals. If you take something like the British Telecom pension scheme—I do not know how many people are in it, but it is perhaps tens of thousan…”

“That is very helpful; thank you.”

“That is very helpful; thank you very much.”

“Q There was an interesting intervention yesterday from the Reform party about local government pensions. I know that is not necessarily part of what we are talking about now, but they made the point that 50 basis points is way too much to charge for assets under management and that it should be 10 basis points instead.…”

“Q Well, there is one, which I would like to test both your opinions on. The Government point out that the reserves are on the public sector balance sheet, and therefore are treated as an asset of the Government, which is obviously offset against Government debt. Do you think that is a justifiable reason not to— Roger S…”

“Q Also, similarly on the equity point: with defined benefit pension schemes, as I mentioned a bit earlier, if you have a deficit, that then appears on the balance sheet. The behavioural outcome of that is that if you are a trustee or from the host company, you would want to avoid the risk—rather like with the BT pensio…”

“Q That is interesting; I will go and have a think about that one. Both of you manage annuity funds. For the record, I have had a chance to meet representatives of your organisations and have had long discussions about this. One of the interesting points that has come out of conversations with many people and organisati…”

“Q But is that right? Do you think that is a good use? Ultimately, as we have discussed, there is always the tricky question about how a fund could go back into deficit again. The flipside of that is that deficit then appears on the balance sheet of the host company, so there is an incentive not to raid it too much. A l…”

“And you war game it? Michelle Ostermann: Yes. The biggest variable that we have a hard time predicting in those scenarios is the likelihood of this being used and the manner in which it is used, but we test deep into the tail. We try several scenarios that give us a high probability of it being abused or overused, and …”

“Q Do you stress test the pensions industry in the same way as the Bank of England stress tests the banking system? Michelle Ostermann: Yes—it is very similar.”

“Q One thing we have not talked about is what the surplus extraction will be used for. If a host company starts taking advantage of this and they invest in building the business, most people would probably agree that that is rather a good thing. However, if they pay out dividends, is that a good thing? If they do share …”

“Q Thank you very much for coming along to give evidence this morning. I want to start with a general question: what do you see as the risks associated with surplus extraction? As we know, a lot of the funds are now in surplus, but we only need interest rates to start crashing back again—it is probably unlikely—and they…”

“Q Christopher, do you have any thoughts on that, quickly? Christopher Brooks: We do not work on final salary pensions, so I do not take a view on it.”

“Q Do you feel the Bill covers that management? Jack Jones: I think it puts a lot of responsibility on trustees to make that assessment. I think it is fair enough to set out the criteria under which trustees might consider surplus release—that is where you have sustained and high surpluses on quite a prudent basis. Whet…”

“Q My last question—Chris, leap in at any point if you feel you have an answer—is about paying out surpluses, either to local government or defined benefit pension schemes. Lots of people have argued why it is a good idea and good for the country, and all that kind of stuff, but are there any concerns in the TUC or Age …”

“Q You raise a very interesting point. Members could come up with an idea. For example, you mentioned ESG, which is a fine thing—I would not disagree with that—but sometimes it could be right to invest in something that a lot of people feel uncomfortable about, such as the arms trade or weapons manufacturers. Very sadly…”

“Q Thank you. I am particularly interested to hear from the two of you, because one of the interesting things about this Bill is that we have had a lot of lobbying from the profession but very little on behalf of the members of these pension funds, who are so important. Mr Jones, if I may start with you, Unison made the…”

“Or, indeed, when they first start to work. As somebody once said, compound interest is the eighth wonder of the world.”

“Q You just triggered another question. Charlotte, can I quickly ask you about the retail distribution review? The retail distribution review came into effect on 1 January 2013. One of the criticisms at the time was that moving from a commission-based model, where IFAs were paid by commission, to being paid by cash, red…”

“Q I will turn to DB pension schemes—where you have a sponsor company. For example, I have heard the British Telecom pension scheme described as a pension scheme with a telephone provider attached to it. One of the criticisms I have heard is that, because of the rules that were brought in as a result of Maxwell raiding …”