The recent announcement of an £800,000 pay and bonus package for Standard Life chief executive Iain Lumsden is yet another kick in the teeth for with-profits policyholders. Bearing in mind the woeful underlying investment performance of Standard Life's with-profits fund, the significant fall in reserves and the currently swingeing MVAs of up to 27 per cent – higher even than Equitable Life's 20 per cent – this is highly hypocritical.
All this from a mutual company owned by its policyholders, of which I am one. How much say did I have in voting on his bonus? Quite frankly, none. Even if I were invited to the AGM, I could not have stopped the bonus being paid with my single vote.
Here is a classic example of insurance company mismanagement. Standard invested far too high a proportion of its with-profits fund in equities at the expense of other asset classes. The bubble in share prices had been going on for 18 years between 1982-2000. Standard's with-profits fund had four asset classes to choose from – cash, bonds, property and equities. This is the typical make-up of a good with-profits fund. Three out of four of these asset classes have risen during the last three years. The smallest of these asset classes, equities, has fallen in value. The bubble was bound to burst.
The next problem that is brewing is Standard reducing its exposure to equities now and attempting to increase its exposure to property. This looks like even more poor management. Why get out of a low-priced asset class and into a high-priced one? Standard looks set to miss the inevitable rise in equity markets that typically follows every war, catastrophe, stockmarket crash and so on throughout history.
I do not have a problem with individuals earning a lot of money based on performance. What is wrong is that too many people get paid an awful lot of money simply because of their position in the hierarchy. It is a case of heads you win, tails you win for the fat cats. If the chief executive is not accountable, who is? Lumsden is wholly responsible for the parlous state of Standard's with-profits fund as he is the chief executive.
Unfortunately, this is typical in the UK today and is not limited to the so-called fat cats. Even politicians are at it. MPs have voted themselves huge pay rises of 40 per cent and improved their civil service pensions to a 40ths basis. The Prime Minister is entitled to two pensions worth £100,000 a year, index-linked, of course, paid for out of the public purse. By the way, Tony Blair's pension is worth £3.2m on the market – way above the proposed £1.4m cap in the Labour Government's Green Paper.
In the meantime, ordinary people's company and private pensions are being hammered by endless regulation and red tape and robbed of £5bn a year in taxation by this Labour Government. Well, MPs have got to pay their pensions from somewhere, haven't they?
I cannot be the only person who is feeling increasingly disenfranchised. I once heard it said that democracy is a terrible system but is the best system there is. Trouble is, I don't find much actual democracy going on. Yes, I can hear some of you saying I have got a vote as a policyholder and elector but the vote is not worth much. The Government can pretty much do what it likes and fat cats can keep lining their pockets, no matter how badly they run their companies.
Why have I based this column on insurance company fat cats and the Government? It is because we advisers are regulated by the Financial Services Act, drafted by a previous Tory Government contrary to common law, in that the adviser is guilty until proven innocent and, if it is not in writing, it did not happen. You have more of a defence in law for committing murder. Roll on the day when we get a true stakeholder society, not the woolly one dreamed up by Tony Blair – one in which we all really get a say and in which your vote really counts for something.
Tony Byrne is business development director at Byrne Williams