Category: Uncategorized

Another nail in the coffin of DB

Further to my post earlier in the week, Matching pension liabilities, the story that led the front page of the FT today, Companies face bigger pensions risk levy, points up the problem and choices that employers with defined benefits schemes face. One further thought. Norma Cohen suggests that the effect of proposals signposted by Partha Dasgupta, the chief executive of the PPF could

“prompt schemes to pare the billions they have invested in equities and would likely lead to demands the government do much more of its borrowing in long-term index-linked gilts that mirror the movements in pension liabilities more closely than any other asset class.”

And that will, in time, radically change the investor profile of many of our leading companies.

Still all to play for

We are still waiting for the fat lady to sing. An excellent analysis in Economist.com on the Texas and Ohio Primaries

What next? The nomination will go to the person who can amass 2,025 delegates. Before Tuesday Mr Obama led in the delegate count, but neither candidate would have been able to reach the magic number without superdelegates. That has not changed. So the campaigns now have to work out how to woo the superdelegates. Mrs Clinton can point to a victory in a state like Ohio and say that she can swing it to the Democratic column in November, but Mr Obama can point to his big success in Virginia and make a similar argument. Right now it seems that Mr Obama will be able to claim a lead in raw popular votes, but Mrs Clinton can point to her successes in primaries to Mr Obama’s successes in caucuses. The race between Mrs Clinton and Mr Obama will continue, and some Democrats will regret that. But Mrs Clinton has undoubtedly earned the right to be there.

It will be a long fight through the early summer, and the outcome is uncertain. Meanwhile John McCain has the Republican nomination, and George Bush’s endorsement (with the obligatory photo opportunity in the White House Rose Garden). McCain may need this to burnish his conservative credentials, but my bet is that that photo will appear in Democratic campaign ads in due course. Would you really want to be linked to the least successful US President in living memory (and that list includes both Nixon and Carter).

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).