WITH perfect timing, the Governor of the Bank of England chose to focus attention on Britain’s pension problem the evening before the Chancellor of the Exchequer was due to deliver his Pre-Budget Report.
Perhaps he hoped that he might prompt Gordon Brown into addressing the pensions issue seriously for once. He even proferred a potential aid to easing the crisis that awaits, in the shape of a government longevity bond.
But it seems unlikely that Mr Brown will find much space amid his torrent of figures and patriotic rhetoric about making Britain great again to talk about a matter that is causing huge concern to companies, investors and voters. Such reticence may not be sustainable. With the Financial Ombudsman now investigating whether the Government was at fault in allowing people to believe that company pensions were guaranteed, ministers could soon find that they have to answer some highly embarrassing questions over pensions.
Yet they continue to take what can only charitably be described as an optimistic view of the pensions problem. Take the Financial Assistance Scheme, launched by the Government to provide for those whose pensions have been lost, or much reduced, when the companies behind them collapsed. The FAS is to fill the gap before industry itself has to, through the Pension Protection Fund. But the Government is only planning to put £20 million a year for 20 years into the FAS. Now £400 million may sound a great deal of money but pensions are expensive. Dr Ros Altmann, a pensions expert, calculates that £20 million a year would pay pensions of £6,000 a year for 130 people, but thousands of people are already potential claimants of the FAS following a raft of corporate collapses.
According to Dr Altmann, the Government appears to be offering “false hope” to people who have lost their pensions. It seems, however, that they are not going to learn the details of how the FAS might compensate them until well after the next election.
The details of the Pension Protection Fund have also still to be finalised, but estimates of the cost to industry continue to rise, as we report today. This is a bill that will land, often unfairly, on those companies which are still striving to do the best for employees by maintaining final salary scheme pensions. The costs of such schemes are escalating, as Mervyn King related last night, in part because of increased longevity. His suggestion of a Government-backed longevity bond to offer some protection to pension providers and company funds is one that will be greeted enthusiastically. Private sector finance houses are interested in such bonds, with BNP Paribas having launched one and Morgan Stanley working in that direction.
Increasing life expectancy is altering the sums for both private and public sector pension providers, but neither category has been quick to address the issue. Do not expect Mr Brown today to make mention of the increasing cost to the country of public sector pension liabilities. David Willetts, Shadow Work and Pensions Secretary, reckons that if public sector pension liabilities were properly accounted for, the national debt would be seen to have grown by about 5 per cent during Gordon Brown ’s seven years as Chancellor.
What is more, the Civil Service is still recruiting youngsters on a promise that they will retire on generous salary-related schemes. Those who recognise the value of such things have a few months more in which to join the ranks of public sector workers, which have swollen so expensively under this government.
Insight of a different sort
INSIGHT Investment prides itself on being one of the leaders in taking its responsibilities as an investor seriously. Rather than just trading in stocks, it likes to “engage” with companies.
This week Insight, the asset management arm of HBOS, produced its “Investor Responsibility Bulletin” for the third quarter. It details how busy the “investor responsibility” team was during those three months and lists all those companies with which it engaged and why.
Predictably, Marks & Spencer and J Sainsbury both feature on the list. There would have been no shortage of things to engage on with them, one might think. Tumbling sales, the rebuffed bid approach and the need for a management clear-out would have been a good start for a conversation at M&S.
Over at Sainsbury’s, any investor might have wanted to discuss the shrinking market share, misspent billions, an undeserved payout to the departing Sir Peter Davis, the hit to the dividend and the prospects of Justin King putting things right.
The responsible investors from Insight, however, operate on a different plane, if not a different planet. There were two issues that they engaged on with M&S: chemicals and responsible supply chain management. Other investors will be reassured to know that the company “responded positively” to “Insight’s pesticide risk management framework”. M&S also obediently attended an Insight seminar on “buying and pricing practices” in responsible supply chain management. The difference will, no doubt, soon be showing through in the sales figures.
Insight also had chemicals concerns with Sainsbury’s, but that company also “responded positively” to the asset manager’s pesticide risk management framework.
The only other matter on which Insight sought to engage Sainsbury’s during the quarter was that of the supply chain. Well, it is a big problem for the grocer, having spent £3 billion on a system that fails to get the right stock to the shops. This crucial element of the business was not what was worrying those responsible investors, however. Their concern about Sainsbury’s supply chain was about “Promoting responsible business in China”. The company dutifully attended an Insight seminar on the subject.
It will do nothing to help Sainsbury to fill the gaps on its shelves, but no doubt it made the Insight halo shine brighter.
Hunting down of Huntingdon
REMEMBER Huntingdon Life Sciences? That was the company that was driven from the City by the animal rights terrorists and continues to be victimised. The Government is now stepping up efforts to combat the worst that the terrorists can do and has established a National Co-ordinator for Domestic Extremism, to ensure that police forces take the issue seriously. But the company has just lost another of its UK suppliers. BOC, the gas distributor, decided that the money to be had from supplying HLS did not compensate for the costs of additional security that were required.
Huntingdon has had to learn to be relatively self-sufficient. As contractors have been frightened away, it has had to take such activities as laundry and catering back in-house. It will cope without BOC. However, Britain’s failure to ensure that lawful businesses can operate without undue harassment is not without cost. Huntingdon has to rely on the Department of Trade and Industry to provide it with banking and insurance services, but no one in the country will trade in its stock, now listed in New York as Life Sciences Research. Which is a pity, since LSR began the year at $2.20 and yesterday hit $10.
BATTLING with the Inland Revenue can be an expensive and time-consuming affair but it seems that it may be necessary if companies are determined to collect the Government’s much-vaunted grants for research and development.
One such organisation, Tribeka, despairs that the costs involved in fighting for the cash soak up much of the money it is claiming. But perhaps it is the Revenue that needs some help with R&D, since it tells the company that it can take “up to three weeks to photocopy” documents.
