Letter To Panorama

93c Venner Road,
London SE26 5HU
0208 659 7713

October 5, 2010


The Panorama exposé of the pensions rip off proves that when it is minded to, the BBC can still produce high quality programmes about real issues although if anything you played down a scandal which like the recent bank crashes dwarfs the manufactured controversy over MPs’ expenses, a storm in a tea cup by comparison.

You also glossed over if not missed entirely the most significant contribution, that of Tom McPhail, who pointed out that on top of charges, on average fund managers fail to beat the index because they are not very good. Mr McPhail could have gone further and added that it is impossible for even the best fund managers to beat the index by a significant margin consistently for the simple reason that it is fund managers who by their sheer volume set the market. Obviously, not everybody can outperform the market; in practice a few will beat it, a few will under perform, and most will perform around the average. That is of course before any deductions are made for the advertising, branches, commissions and other overheads to which Janet Walford alluded. Tony Levene made this point in his book The Shares Game which was published over twenty years ago.

The wisdom of Mr Levene’s book was confirmed last year when in a seemingly bizarre experiment, a parrot in South Korea outperformed human investors. The reason being presumably that the parrot traded infrequently, and thus avoided the churning to which Dr Woolley alluded.

The only advantage of a pension fund is the tax break, but as all or most of this is eaten up by commissions and other fees, people would be better off depositing this money instead in a government managed fund. The simplest way for this to work would be for the government to purchase at regular intervals large tranches of Blue Chip shares which it would not trade at all externally but simply hold onto. Funds would be paid out as pensions matured.

It is encouraging to see the government intends to set up something like this with NEST, but it should go one stage further and do away with “professionally” managed pension funds in their entirety. Contrary to the bland assertions of Boris Johnson, these people do not benefit the City, London, the British economy as a whole, or their investors, as your programme demonstrated clearly. The only people they do benefit are themselves. In the age of the Internet, there is really no need for managed funds to have palatial offices in the City of London or anywhere else. There is no need for them to advertise, there is no need for them to pay commissions.

People who pay into such government held funds could be given the option of managing their portfolios within the fund, or simply leave it to the government. Likewise, share and other securities could be sold direct to the public without intermediaries, or perhaps through a few specialist websites which would receive a tiny commission on each transaction. I did suggest to FaceBook a while ago that they should do this, but perhaps BetFair would be more appropriate.

The only facet of this trading that would need to be dealt with is that of enhanced security; while people could trade electronically, there would have to be proper telephone and other checks to eliminate fraud. This would also slow down the process of trading, which would itself have a beneficial effect on the stability of the entire financial infrastructure as it is the ability of capital to be transferred around the world in the blink of an eye which as much as anything else is responsible for the at times ludicrous fluctuations in shares and other prices, something that has turned the financial sector into something more akin to a casino than a haven for investing.

You may find the link below of some interest.


Yours Sincerely,
A Baron

[The above letter was E-Mailed to the BBC TV programme Panorama as dated. Headed “The Panorama pension exposé”, it is reproduced here verbatim bar some added italics.]

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