“Partnership Pensions” would combine low charges with portability, and a new Retirement Income Commission would promote savings. The plans would build on the Turner Commission’s proposals for automatic enrolment and level of contributions, while providing competition and choice. In terms of presentation, the plan on Thursday from the Association of British Insurers can barely be faulted.
But as with other areas of financial complexity, pensions policy is a subject where it pays to look beyond the well-crafted words and go in search of some numbers.
The plan contains one figure it is easy to believe. While the Pensions Commission envisaged that it would cost 0.3 per cent of contributions to set up and run the National Pension Savings Scheme, a study by Deloitte for the ABI estimates it will cost half as much again.
But in other respects, the outline proposal is light on numbers.
For example, it says that transfer between providers would be cheaper and easier. These charges can be extremely high, so some quantification of how much cheaper would have been welcome.
The ABI also says that its proposals would be cheaper to start up and to run for at least 10 years than the NPSS would be. This raises the question of what would happen beyond that. One might have expected that the costs as a percentage of funds under management might come down as the funds themselves increased, so some reassurance on this point – beyond the possible intervention of the putative Retirement Income Commission – would be good.
Faced with the prospect of losing ground in group pension plans and sales of annuities, the life assurance industry has shown an ability to reduce its costs, which would have been very welcome earlier but is still welcome now. There should be scope for further progress before the White Paper is published in May, This is just the next phase of the debate rather than the last word.
Shock of the new
Markets do not like uncertainty. Specifically, they do not like it at companies that they have grown to rely on. It did not come as much of a surprise, then, that investors’ first reaction yesterday to Tesco’s announcement of expansion into the US was to mark the shares down.
The shadow passing over the Tesco stock price was partly that of Marks and Spencer’s acquisition in 1988 of Brooks Brothers, the clothing retailer, and King’s, the supermarket chain – both later sold for a fraction of their purchase prices. Ill-fated transatlantic forays by other UK retailers lurked nearby.
Tesco’s share price was also haunted by the spectre of success. The stock trades within 20p of its all-time high and at that level it does not take much to worry investors. The fear that a successful company will overstep is bound to increase in direct proportion with the share price.
Against these ghosts, Sir Terry Leahy set his company’s meticulous research, top US project team and record. The Tesco chief could also have pointed out that not all UK retailers have failed in the US – Signet, the jeweller that used to be called Ratners, has made a success of a string of American acquisitions over more than 15 years. The risk of expanding organically is lower, but the potential benefits are harder to quantify. Short of unveiling the format and precise location of its new convenience stores – and thus presenting rivals with a big target – Tesco could never give investors all the elements with which to judge the strategic merits of the group’s decision. Sometimes shareholders just have to decide who they trust.
Bloody Good for BG
How many sorts of good news for investors can a single company contain? BG Group on Thursday seemed to be going for the record. The oil and gas group seriously outperformed fourth-quarter expectations, rebased its dividend and provided an outlook for strong and sustainable growth through to 2012. Plus it remains a takeover target, though presumably rather less so at Thursday’s closing share price of 675p than it was at the previous day’s 617½p.
These results show the group being both a growth stock with ambitious plans for increasing capital expenditure and a group enabling investors to share the benefits of growth – albeit from the base of a dividend policy that has previously been noted for its stinginess. The rise of 57 per cent in the full-year pay-out comes on top of a £1bn share buy-back.
The group has, of course, been helped by high oil prices and the sharp rise in spot UK gas prices. But even if prices had been stable, the fourth-quarter results would have improved 32 per cent.
Thursday’s results prompted analysts to raise target prices from 650p a share to 750p. The only investment virtue BG appears not to possess is unnoticed success.
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