Lombard

Last updated: December 4, 2012 8:39 pm

Pensions gift would keep on hurting

Osborne must resist giving in to the CBI’s demands

A car radio with wires dangling. A bunch of flowers with roots still attached. An increase in the discount rate against which many UK companies measure their pensions liabilities. All three presents cost the giver nothing. Only one, we assume, might come from the chancellor.

George Osborne is expected to cave in to pressure from the CBI and mount a review of defined-benefit pension costs, which the employers’ body says are hurting some members. Future liabilities are totted up triennially by actuaries, a corps of specialist statisticians, prudently discounted by yields on gilts. These are historically low, which means gross liabilities have risen 40-50 per cent since 2009, according to Hymans Robertson.

Business lobbyists blame gilt-buying by the Bank of England for the problem, although the stimulatory programme is over for the moment. If the government agrees with the complaint, it would still be pushed to impose an invented discount rate on the Pensions Regulator, which signs off scheme solvency plans. A more respectable alternative would be to foist a smoothed gilts-based rate on the watchdog.

But even this would be a mistake. When assets are marked to market and liabilities are valued according to expediency, logic has left the building. Moreover, there would be nothing to stop sponsors demanding a reversion to real rates when these picked up again and smoothing became expensive. The temptation will be strong for Mr Osborne to bestow a gift paid for with a weakening in the security of pension promises. He must resist it.

The Long and short of it

Billy Butlin must feel vindicated in the hereafter. He pioneered all-inclusive holidays for Britons, sales of which have helped Tui Travel make record full-year profits. These days destinations are more exotic than Minehead and the jollity less hectoring. But daytime activities and evening entertainment are still thrown in with the accommodation.

A forecast-beating 8 per cent increase in earnings before nasties to £390m has fuelled talk of a rebound in the fortunes of package holidays, which also include a flight. Chief executive Peter Long has thus promised to raise underlying profits by 7-10 per cent annually for five years.

Brave man. The reignited passion of Brits, Germans and Scandis for packages was just one positive that supported the European travel behemoth last financial year. There was also a lack of disruption from volcanoes, baggage handler strikes and other acts of God. Thomas Cook, Tui’s main UK competitor, was notably weak.

With inclusive packages already accounting for 80 per cent of UK bookings and European economies struggling, there are natural limits on growth. Tui would win a poolside beauty contest for travel groups if Mr Butlin was around to stage one. But its shares, up 63 per cent since last summer, look dear.

Deadpan Ed

Edward Bramson would be a hard man to read at the poker table, writes Kate Burgess. Yesterday, the impassive New York-based activist relinquished day-to-day management of F&C Asset Management to become non-executive.

It is easy to extrapolate a sale is in the offing for the 20 per cent stake he bought two years ago.

Rival fund managers say he has played a poor hand well, cutting costs and putting F&C on a more profitable footing. He has not yet convincingly addressed F&C’s core problem of dwindling assets as the group’s legacy of insurance and bank clients withdraw money.

But the shares have recovered to levels seen in February 2011 when Mr Bramson joined F&C’s board and are about 30p higher than the average price he paid for his stake. There has even been talk that Mr Bramson has offered the stake to suitors jilted by F&C’s former management.

Then it turned out Mr Bramson recently lifted his holding to 22 per cent. Perhaps he has a royal flush. He may be bluffing. Or perhaps he reckons he can afford to wait for cuts to feed through to earnings next year. But other investors might want to throw in their cards before then.

Tenacious D

God Bless Lord Dennis Stevenson. The former HBOS chairman says governance at the bank, rescued from collapse under the weight of toxic debt during the financial crisis, was “rather good”, adding: “There was just no way we were encouraging a culture of excessive risk-taking.”

The shipping line boss who said the Titanic was unsinkable is an enduring symbol of hubris. But at least he changed his tune when he found out the ship had actually sunk.

jonathan.guthrie@ft.com
kate.burgess@ft.com

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