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Smokers are paying for your pension

28 May 2016

9:00 AM

28 May 2016

9:00 AM

Axa will no longer invest in the tobacco industry: the French insurance giant will sell €184 million of shares and gradually reduce its €1.6 billion bond holdings in the sector. No surprise, given Axa’s role as a health insurer and the oft-repeated statistic that smoking kills six million people a year; indeed, you might think any health-related investor would have taken the decision years ago. Except that cigarette-makers have been stellar stock market performers since the beginning of the century: British American Tobacco’s shares have multiplied in value a dozen times while paying rich dividends, and Imperial Tobacco (now Imperial Brands) has been almost as good. MSCI’s global index of tobacco shares has outperformed equities generally three times over for the past decade.

And that creates a conundrum, especially for pension-fund managers. Tobacco is legal; smokers persist, of their own free will, despite health warnings. But to the extent that smoking has declined in the UK and other parts of the developed world, it is a factor in the rising longevity that challenges the pensions industry. Funds need high-yielding investments in order to pay out for longer, but those such as Calpers (the Californian public workers’ pension scheme) that took an early decision to shun tobacco measure the opportunity loss in billions.

Axa ducked that issue by arguing that tobacco is a ‘sunset industry’ because ‘more and more countries are going to put controls on it’. Health campaigners, by contrast, talk of a ‘global epidemic’ driven by lack of controls and health warnings in the developing world. The heaviest consumption is in China, the former Soviet bloc and southern Europe (with far more women smokers these days) and other emerging nations are ripe for exploitation — for example, by selling cigarettes one at a time rather than in packs, to capture younger and poorer customers. Far from sailing into the sunset, Big Tobacco (which is also investing heavily in ‘vaping’ for western markets) almost certainly has another decade of high returns ahead.

Prominent investors like Axa that are conscious of their ethical reputation may divest, but hedgies, libertarians and those who keep their investment choices quiet will continue to buy and hold. The fact is that top-performing portfolios are highly likely to have tobacco in them; the successful fund manager Neil Woodford keeps BAT and Imperial among his largest holdings and once said that his biggest mistake was not to have bought more. If you’re troubled by the idea of funding your retirement by passive smoking, as it were, then I suggest you quiz your wealth manager as to exactly how much of it is hidden behind all those opaque fund products he’s put your money in.

Europe’s real flashpoint


On the European front, we have all made the mistake of taking our eyes off Greece. Here, Remain and Leave bombard each other with bogus stats and scare stories; in northern Europe, they shake their heads at the Brits and worry about the rise of the right; to the south, Spain is the shining recovery story. But Greece? That problem was parked — wasn’t it? — when the third bailout was agreed last summer.

Not so. We seem to have forgotten the unshrinking mass of debt, the reluctance to enact reform, the bitter resentment towards Germany, and the differences of view between IMF officials looking at objective reality and EU negotiators determined to keep the single currency intact. These factors, festering all the while, came into the open again this week when eurozone finance ministers met in Brussels.

On their table was the IMF’s ‘preliminary debt sustainability analysis’, which dismisses the possibility of Greece achieving the 3.5 per cent primary GDP surplus that was assumed in last year’s bailout formula; even 1.5 per cent would be a stretch. On current indications, says the IMF, Greece might end up with ‘gross financing’ costs of 60 per cent of GDP by 2060 — and it’s obvious that this impossible trajectory can only be altered by deep debt relief, which Germany refuses because it equates to direct fiscal transfer. The flashpoint for the tensions that will one day break the European project apart is not in Vienna or Paris or on Boris’s battlebus, but where it has been since 1 January 2001, the day Greece was fraudulently ushered into the euro.

Better hair day at ITN

I applied to be economics editor at ITN but I gather I was rejected on grounds of balance: they were looking for someone with better hair than politics editor Robert Peston. That must explain the appointment of Noreena Hertz, an academic with striking looks but minimal broadcasting experience. This former ‘Miliband fellow’ at the LSE had her previous moment of fame in 2001 as the author of The Silent Takeover: Global Capitalism and the Death of Democracy. In the era when trade talks and summits from Seattle to Genoa were regularly disrupted by protests against corporate evil, Hertz’s book played to that theme and staked a claim to radical sisterhood with Naomi Klein, the Canadian activist who was the nearest thing to a thought-leader of the anti-globalisation movement.

But their collective message never amounted to anything more substantive than the slogan on Seattle  rioters’ placards which called for capitalism to be replaced by ‘something nicer’. Then, a few months later, came 9/11. Thereafter the anti-globalisers gradually fell silent, their obsession with ‘the exploitative power of global brands’ exposed as self-righteous attention-seeking in a world of far darker threats — while weightier thinkers such as Martin Wolf (Why Globalisation Works, 2004) elucidated the case for capitalism’s defence.

I’d have to say it has never occurred to me to wonder what Noreena was thinking about the big issues of the intervening years. But who knows, perhaps she and Pesto will become the Richard and Judy of the bienpensant metropolitan left.

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Show comments
  • Mary Ann

    Smokers paying for my pension. It’s very kind of them.

    Mind you, as an ex-smoker, I actually think that it is disgusting that people are making money out of manufacturing a product which if used properly will, on average, shorten you life by about 10 years.

    • WTF

      People make money from cars, processed red meats, alcohol and many other activities or products that shorten our lives. Kids today are starting to get RSI due to excessive smartphone use and a study in the US last week has linked cancer to the transmitters in a mobile phone so where do you want to start or stop access to ‘products’ that can cause health issues.

      Why is it disgusting that a company is bad for selling a legal product as we could attack thousands of arms companies for making and selling arms based on your opinion. You do talk rubbish most of the time !

  • davidofkent

    The writer has forgotten the £billions spent over the past thirty years or so by the NHS (from my taxes) in treating the many ailments associated with smoking.

    • Pretty_Polly

      Surely the tax on tobacco has paid for much or all of such treatment?

      In any case one could perhaps argue that smoking has benefited the taxpayer who is required to pay less for the provision of state pensions.

      • davidofkent

        And then, we should count the non-smokers who have been subjected to passive smoking and needed treatment. Perhaps in 50 years when smoking has been eliminated, some bright spark will use the cost/benefit to the nation of smoking as a subject for a thesis.

        • Pretty_Polly

          Life is full of risk.

          If smoking were banned as you apparently think might be a good idea, then someone else might find something you like doing to be dangerous which should be banned too.

          In the end we would ban virtually everything enjoyable. So I think smokers should be allowed to smoke without being bullied. After all, by their defiance of the do gooders and the bien pensant, smokers bravely defend all our freedoms.

        • WTF

          Deflection Alert:

          Epic fail on your first assertion based on costs now we’re trying a different tack are we ?

          One could argue that smoking like many drugs can de-stress but on the subject of cost/benefit to the nation, when has ANY government looked further ahead than the next election and getting re-elected. Has any government the balls to ban smoking out right, I doubt it !

          As for your first point, you have non smoking areas so quit whining about the past as I could equally complain about the pea soup smogs of the 1950’s or the hidden car pollution in London today that you can taste and breath but can’t see !

    • gunnerbear

      The taxes from tobacco production and sales more than covers the costs to the NHS.

    • railman

      “…many ailments associated with smoking.”….. and car accidents, and diesel fume inhalation, and obesity, and drinking, and processed ‘meat’ eating, ETC,ETC,ETC. Take your head out your 4rse.

    • WTF

      And neither have you considered the £billions saved on not paying state pensions for those who died young. It cuts both ways as had they lived, current tax payers would be paying a lot more !

    • David Beard

      We all have to contribute toward things we may or not be happy about. Why pick on smokers? And even if if it were banned tomorrow, the government, the NHS, and their many nanny state lobbyists will just think up other ways of getting hold of the surplus you think you would be saved.

  • John Carins

    What about the Euronannying over e-cigarettes? Yet another decision taken out of British hands.

    • gunnerbear

      The DoH rather likes the TPD ’17 because it brings e-cigarettes more into line with tobacco products thus putting in place product standards etc…..the DoH even mentions the TPD in the opening of its position paper…. http://www.ash.org.uk/files/documents/ASH_919.pdf May I draw your attention to para. 8

      Tobacco Products Directive

      8. The Government supported the final text of the revised Directive which provides

      for additional safeguards to existing consumer product provisions, in relation to

      safety, quality, ingredients and presentation of electronic cigarettes, where these are

      not licensed as medicines.

      Not exactly ‘Euronannying’ is it…perhaps your ire ought to be directed towards the SoS Health and HMG.

      • John Carins

        Did you see the excellent documentary with Dr Michael Mosley? This UK government support membership of 5the EU and will comply whatever the EU nannies impose.

  • WTF

    The law of unintended consequences strikes again !

    Pressure groups make smoking a moral sin and attack anyone who smokes and yet the reality is that smokers contribute far more to health care via taxation. They die younger unfairly contributing more than their fair share to pension provisioning and now insurance companies like AXA are wondering where to invest to cover pension funds.

    That’s what happens when you let socialists take over and pursue policies like these without thinking through the consequences. As an OAP and ex smoker it doesn’t really affect me but as morally justified certain measures might be, the knock on affects are never considered by the left. The LGBT debate currently going on in America regarding access to toilets or locker rooms as admirable as they might be, they have not considered the privacy of non LGBT kids.

    Socialists are unfit for purpose as they NEVER think it through whether banning smoking, LGBT or any other pet project of theirs can have undesired consequences !

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