Response could hurt Turner proposals
It is hardest to address a problem when you behave as though it does not exist. So the government has given itself a particularly uphill struggle in rebuilding public confidence in official information about pensions.
John Hutton, work and pensions secretary, on Wednesday insisted there was no evidence government leaflets about the security of pension schemes were inaccurate or incomplete. The longer ministers take this view, the less they will address the fall-out from failing to take responsibility for the 85,000 people who lost pension benefits when company schemes were wound up without enough funds to meet their obligations.
There is never a good time for people to believe they cannot trust what the government says about pensions. But now is a particularly bad time. The damning report from Ann Abraham, the parliamentary ombudsman, comes as ministers seem to be moving towards accepting the main proposals from the Turner Commission on pension reform, including the establishment of a national pension savings scheme.
Of course, a state-sponsored pension would be a different creature from an occupational scheme backed by an employer. But there remains a real prospect that the NPSS plans would be contaminated from the outset both by the government’s less-than-perfect ability to explain risk and by its refusal to pick up the pieces.
If the NPSS is dependent on automatic enrolment, as Lord Turner envisages, ministers might argue that trust is a less significant issue than if people had to choose to commit to a state scheme. This is not compelling. The ability to opt out would remain and more people are likely to take it up if they doubt that the government is giving them advice they can rely on and that it will stand behind them if something goes wrong.
Consumer distrust of the life assurance industry, after widespread concern about the mis-selling of personal pensions, has already undermined aspects of funding retirement. Compensation and a government apology are necessary first steps to prevent more damage to pension provision.
Dane Douetil, the chief executive of Brit Insurance, can make a reasonable claim to be doing it all.
In seeking to deal with investors’ gripes, he has made Brit’s balance sheet more efficient and has cut the group’s exposure to extreme risks from natural catastrophes. A by-product of this is that Brit is now fully using its capital to write new policies. So in order to keep expanding in favourable market conditions, it must keep some of its earnings back.
The move looks sensible. Previously, the dividend was liable to sharp swings in line with the vagaries of the insurance market.
Even with the reduced pay-out, the shares still yield about 5 per cent.
Brit’s approach contrasts with the rights issues through which other Lloyd’s of London insurers have raised equity to expand in Bermuda.
It carries the associated lack of exposure to the racier sectors, such as offshore energy. As a result, the shares, which on Wednesday fell 5¼p to 96¾p, trade on about 1.5 times net tangible assets of 65.1p – a discount to Hiscox and Amlin.
Surprisingly, Brit stopped short of following other large quoted companies with Lloyd’s businesses in using its results announcement, the last of the season, as a platform for the changes it would like at Lloyd’s.
Richard Ward, named as the new chief executive of Lloyd’s just before the reporting season began, will already be all too familiar with the bigger companies’ calls for more efficiency and the staunch defence of their efforts to bypass the market’s central management in introducing electronic trading. Brit’s reticence is unlikely to last long.
High hopes for Hanson
Hope and reality met in the Hanson share price on Wednesday. Shares in the building materials group rose to 880p in the morning on talk of a break-up and renewed discussion about how nice it would be for investors if Lafarge bought the group. By the end of the afternoon, the shares were back to 747p, much nearer the opening price of 741p but still an all-time high closing price.
For once, the reality check about a likely approach to a target company related not to a pension fund deficit but to asbestos liabilities in the US. It seems unlikely that Lafarge would set out to buy exposure to unquantifiable asbestos risk when it has none at the moment – whatever the strength of the operations attached. As Hanson’s $60m (£34m) annual provisions for asbestos stretch out eight years and counting, this would appear to limit its scope to take part in consolidation.
The asbestos discount in the Hanson share price has lessened significantly since 2002. The amounts that must be paid out look set to be on a broadly downwards trend and, in some years’ time, may cease to be material. It is still not the same as being a positive, though.