Author: wilks

I called myself wilks when I first started blogging. The idea was that it would afford a measure of anonymity. For much the same reason, there was no photo. Times change, hence the photo, but I decided that even when I changed the blog’s title at the start of 2009, I should remain wilks.

Matching pension liabilities

It is a shame that a lot of the good sense about pension investments is hidden away. This morning there was an excellent article by Edward Chancellor in FTfm, Pensions still oblivious to bond wisdom.

The first rule of financial prudence is that assets and liabilities should be matched. Unfortunately, during good times this rule tends to be forgotten. There’s normally a profit to be made by borrowing in a low-yielding currency and lending in another at a higher rate; or by borrowing short and lending long. The mismatching of assets and liabilities lies at the heart of the current credit crisis. In recent months, many have discovered the perils involved in the pursuit of such easy gains. Only the pension world remains oblivious.

He may have the Pension Benefit Guarantee Corporation in his sights, but what is true that side of the Atlantic also holds good over here.

The death of defined benefit

Although it may still be premature to announce the death of defined benefit pension schemes, their days are numbered. As reported this morning in the FT, another pensions consultancy, Aon Pensions Consultants, has warned that

Final salary pension schemes face their worst ever deficits if plans go ahead for new accounting standards and more generous assumptions about life expectancy.

To the pensions industry this is old news (and the defined benefit scheme has in truth been an inordinately long time in dying: I was advising on changing schemes more than 15 years ago), but there is another and equally important aspect. Most public sector schemes are salary and service related, and the cost of these schemes is already far higher than many people realise. Changing the assumptions for life expectancy will only make things worse. The government recognised that action needed to be taken in relation to the state pension, and whether or not Personal Accounts are the right anwer (I am not convinced), the nettle was grasped. Unfortunately this has not been the case with public sector pensions. It will have to be, because the burgeoning costs of these pensions is a millstone around the neck of the public purse: and the quid pro quo (of receiving below private sector pay but enjoying a full pension promise) is not as persuasive an argument as hitherto. But don’t hold your breath for this government to do anything about it.

The politics of self-interest

It was inevitable that the decision to award the tanker contract to the EADS-Northrop Grumman consortium would cause outrage in the US: see the report in this morning’s FT, US outrage after EADS wins tanker contract. For a considered view (and in anticipation of the decision: the article appeared in the print edition at the end of January) the Economist’s This time it’s war cannot be bettered. What is just as interesting is how this will play out in the US presidential election. So far quiet, but not, I bet, for long (if only because it was a congressional investigation led by John McCain that stopped Boeing last time).