BEFORE the election, the Government’s line on pensions was clear: it would remain unclear on what to do until Adair Turner’s Pensions Commission reached its conclusions and he was certainly not to reach those conclusions until long after the election.
Mr Turner will report before November is out, yet the new Work and Pensions Secretary, David Blunkett, has now decided that he will be conducting his own detailed analysis of the pension situation for women. Mr Turner’s commission is unlikely to have overlooked the position of half the country. His review would be somewhat incomplete had he done so. Mr Blunkett’s decision to set off on his own inquiry “to inform the debate” raises the suspicion that Mr Turner’ s recommendations are at risk of being relegated to mere fodder for a debate that could go on for years rather than months.
More positively, Mr Blunkett is encouraging companies to make their pension schemes “opt-out” rather than “opt-in” for employees. Already this is possible but relatively rarely done. Encouragement, however, may not be enough. When employees choose not to take advantage of contributory pension schemes they make themselves significantly cheaper for their employer. Without compulsion, there will be plenty of companies that prefer to leave the onus on the employee to opt in to the scheme.
Given the way that the costs of running pension schemes are escalating, who can blame them? The latest news on the Pension Protection Fund shows just what a charge it is going to be on those who continue to run defined benefit schemes.
Although, with the election out of the way, the Government is taking a long and considered view over how to move forward on pensions, before the election it was faced with something of a crisis over companies that were collapsing, leaving their pension funds in deficit and pensioners potentially deprived of the retirement benefits for which they had saved. This called for knee-jerk reaction rather than deliberation and the results are proving predictably costly.
First there was the Financial Assistance Scheme, designed — well, more of a doodle really — to bail out funds that collapsed too soon to go into a slightly more considered safety net. The FAS is proving a hugely expensive operation. As the Lib Dem’s Lord Oakeshott of Seagrove Bay pointed out yesterday, the scheme is costing 27p for every £1 it pays out.
Then there is the Pension Protection Fund, still incomplete in design terms but already looking considerably more expensive than the original numbers suggested. That, the Government now admits, is in part because it based its original calculations on figures that were out of date. So companies are going to have to find far more than the £300 million a year that was originally quoted.
Charging a flat-rate fee to every scheme was clearly unfair, penalising the well funded at the expense of companies that had taken a cavalier attitude to the pension fund. Coming up with an equitable risk-based formula, however, is a challenge over which actuaries could surely squabble for many years.
Ratings agencies are to be asked to determine the risk of insolvency for companies, a factor that will then be weighed against the liabilities the fund faces. Plenty of scope for careful judgments here. Presumably, investors will be keen to know which of the ten risk bands is attributed to every company. It will be another incentive for companies that have already closed their defined benefit funds to new entrants to wind up the schemes completely.
Chip leader feels the heat
YESTERDAY’S dawn raids by European Commission officials on the offices of Intel rank as some of the least surprising in the history of competition law. AMD has 17 per cent of the world market for chips to power Windows personal computers compared with Intel’s 82 per cent. Its shares are valued at £4 billion against Intel’s £90 billion plus and the smaller of the Silicon Valley companies has long contended that Intel uses unfair tactics to protect its dominant position.
After a long wrestling match with Microsoft in the US, President Bush’s Justice Department showed little interest in taking on Intel, arguing that its top antitrust priorities should be cartels and mergers. The EU’s competition authorities then lost interest.
AMD revived action in Europe and Japan by drawing up a new dossier featuring a colourful claim from one computer maker that it had been “beaten into guacamole” for buying AMD processors. In March, Japan’s competition police accused Intel of offering illegal discounts for customers who agreed to limit or exclude purchases from AMD.
This seems to have prompted the Commission to step up its own investigation. The dispute has already caused embarrassment by wrecking an EU-funded programme to put computers in Poland’s schools. Tenders were delayed so much by court actions alleging discrimination that the programme missed its EU funding deadline.
Last month, AMD boss Hector Ruiz raised the temperature a bit more by launching civil lawsuits in the US and Japan. He took out advertisements and published AMD’s populist 48-page claim on its website.
The essence of the claim is that aggressive marketing tactics that are part of the rough and tumble of competitive markets become unacceptable if a producer has a dominant market share. This is a murky area. As with alleged predatory pricing, consumers may benefit from “anti-competitive” discounts and it is hard to judge the point at which tough, entrepreneurial practices become an abuse of market power. That is why campaigns against supermarket groups get nowhere.
For AMD, however, there is an added incentive to level the playing field. A new generation of more powerful “dual-core” processor chips is about to hit the personal computer market and AMD’s version is getting some good reviews against Intel’s. This could be Mr Ruiz’s last chance to grab a bigger share of the business.
A rail cock-up
STEPHEN BYERS, the former Transport Minister, was in danger of being described as “cocky” as he defended himself against allegations of “misfeasance in public office” in the High Court yesterday. In his former guise as a polytechnic law lecturer he might have counselled against such a stance.
He and his former departmental colleagues probably take comfort from the fact that the charge is a difficult one to prove. But those who have been comparing the Railtrack case with the interminable proceedings aimed at proving the Bank of England was guilty of similar misfeasance have seen far more enthusiasm for achieving the end result than ever there was at the Bank as BCCI collapsed.
The e-mails and memos that have been prised out of the Treasury and the Department of Transport might not add up to misfeasance but they do show a Government that had contempt for the shareholders in Railtrack. The Treasury adviser, Shriti Vadera, had pondered in writing, “can we engineer the solution through insolvency?” Hardly a cause for cockiness.
- ALMOST 250,000 school students are running their own businesses under the tutelage of Young Enterprise. Yesterday, awards were presented to this year’s top performers, but really all who take part in the scheme are winners. An early taste of commerce encourages the entrepreneurs we need. Customising and selling clocks as a Young Enterprise entrant, for instance, lies behind a thriving real business supplying companies with printing accessories. More Young Enterprise in schools could be far more effective than sending half our young to university.
