HURRY, hurry. There is still time to snuggle into the comfort of a generous public-sector pension scheme that will provide for well padded retirement at the age of 60.
Forget the fact that the Government announced last December that it would be doing away with final-salary schemes and phasing in a later retirement date from 2013. These plans were, said Ruth Kelly, the Cabinet Office minister, “intended to modernise the Civil Service”. But the Civil Service did not want to be modernised and neither did the rest of the public sector so the Government quietly pushed those plans to one side until after the election.
Eventually it summoned the courage to suggest that, if they were allowed to hold on to the final-salary schemes that are fast becoming extinct in the private sector, perhaps public sector workers would accept a gentle phasing in of a later retirement age starting in 13 years’ time. This from a Government whose leader so recently told the Labour Party conference that “every time I’ve ever introduced a reform in government, I wish in retrospect I had gone further”.
That was the rhetoric, but the deal that was unveiled yesterday shows the Government not even going as far as that fairy step towards reform. The retirement age stays at 60 for all those currently working in the public sector and remains there, as does the final-salary scheme, for any newcomers who climb aboard, at least until next summer.
Instead of the Government instituting the much-needed reform of a system that has liabilities estimated at close to £700 billion and which will be an increasing drain on the country, it is saying merely that the retirement age should go back to 65 but only after the individual funds involved have sorted out how they want to structure benefits after that. The Trade and Industry Secretary hopes that agreements on this can be reached by next June, with the new arrangements for joiners implemented shortly afterwards. Do not be too surprised, however, if negotiations drag on rather longer. Which will mean many more people will have the chance of signing up for a final-salary pension, payable in full at the age of 60.
For those in the private sector who have seen their pension benefits shrinking as terms have to be renegotiated, the “tough, modernising” line being taken by the Government will cause a degree of ire. That might turn to fury when they realise that the Government has been persuaded by the trade unions to provide an extra 1 per cent of payroll to improve benefits for those newcomers who would have to work as long as the rest of the country or to protect the lot of existing scheme members.
The problem with public sector pension schemes is that they are already costing the taxpayer far too much. How ridiculous that, in order to achieve a minor saving, the Government has been prevailed upon to increase the proportion of payroll that will go towards looking after retired civil servants.
No wonder that both the CBI and the Institute of Directors were equally disparaging in their reaction to the news. “The Government has capitulated to the threat of public sector strikes,” thundered Sir Digby Jones, Director-General of the CBI. The IoD accused the Government of “caving in” to the trade unions.
And who can be confident that, having established the puniness of the will to reform, the unions will not make the same threats next summer?
Post haste
ALLAN LEIGHTON strode into the Barbican straight from his latest confrontation with the Department of Trade and Industry Select Committee and proceeded to tell delegates at the Leaders in London conference his secrets of leadership.
“Listen to the operators,” was his refrain. “They know how things work and where the problems are.” Ever since he took over as chairman of Royal Mail, Mr Leighton has been determined that his operators should also be shareholders and it became clear at the select committee that he is close to securing a 20 per cent stake in the business for employees.
While this will inevitably bring choruses of disapproval about imminent privatisation, he was open about the fact that this was not a business in a fit state to be offered to the market, even if that were an option.
For too long the organisation had been sinking under a surfeit of strategy and a lack of implementation and innovation.
The need for innovation was emphasised in an earlier session when Sir Terence Conran and Luqman Arnold, the former boss of Abbey and now chairman of the Design Museum, discussed the importance of design and creativity in success. Sir Terence wants to see tax breaks for design. “Make it RD&D,” he said. Good design sells products, he says, and needs encouraging.
Gale warning
REFCO has had to seek protection from its debts. The US broking group acts as clearing house for more than $4,000 billion a year of derivatives transactions, so it is understandable that apocalyptic visions have surfaced of what could happen to Refco’s hedge fund clients and the bankers who have lent them nearly £300 billion.
There are systemic risks, but regulators, markets and central bankers have learnt a lot since the archetypal stock market crash that hit London 18 years ago today. The gale-borne crash of 1987 knocked a fifth off share prices in a few hours. Governments were obliged to cut interest rates and create liquidity to stop markets imploding. Prices had recovered fully within two years, but the kerfuffle set off five years of economic instability. By comparison, the rescue of Long Term Capital Management in 1998 caused barely a murmur.
To put things in perspective, the initial loss of value in 1987, at just over £60 billion, is only slightly more than the loss occasioned by a 200-point or 4 per cent correction in the FTSE 100 index so far this month. The pain of a tumble depends on where the fall begins.
Going spare
IF America’s motor industry is to be revived, reorganising its parts sector is as vital as reinventing General Motors and Ford. Wilbur Ross, a private equity investor, is stepping in where others have failed, with an ambitious plan to vacuum up 15 per cent of the world parts industry, or at least bits of it. There is no shortage of busted companies to buy. The UK interiors business of bankrupt Collins & Aikman could be an early candidate and ThyssenKrupp may sell in America. But success needs Ford and GM to sell more modern cars.
