COMMENT : Above-board ways to tap company pensions

`To move from declaring the National Grid case a misuse of funds to saying that companies should not be allowed to take surpluses period would, however, be a mistake'

Tricky things, pensions. The Maxwells nearly went to jail for misusing pension fund assets but there has always been a perfectly legal way for companies to get their hands on their pensioners' money. This is to get the actuaries to declare that there's more money in the fund than is required to meet expected liabilities, and then simply swipe the surplus, or at least take a prolonged holiday from contributions. For obvious reasons this has always been contentious but it hasn't stopped companies doing it with abandon. Now along comes the Pensions Ombudsman, Dr Julian Farrand, to say that in at least one case, that of the National Grid, this should not have happened.

A number of the other privatised utilities are in exactly the same position, so Dr Farrand's adjudication plainly has quite far reaching implications. All the same, this is a bit of a special case. The terms of the scheme specifically disallowed the use of any surplus for the employer's benefit. So what the Grid did was to use its share of the surplus for the benefit of employees - or rather, to pay early retirement and other benefits to those it was making redundant. Since these were costs which the Grid would otherwise have had to meet from its own resources, the ombudsman has rightly declared this a misuse of funds.

To move from declaring this particular case a misuse of funds to saying that companies should not be allowed to take surpluses period, would, however, be a mistake. Most occupational pension schemes are not the sole property of the employees, though it is easy to see why they should think this. Typically, the employer will enter into an open-ended liability to meet promised benefits. That, in turn, obviously gives him certain rights of ownership. Certainly there should be a quid pro quo entitlement to any surplus in the fund.

Occupational pension schemes are a dying industry with most companies keen to move their employees on to straight money purchase personal pensions. But there's a long tail to be worked out before companies finally shrug off their pensions inheritance. Judging by this case and others like it, there's plenty to keep the lawyers occupied with yet.

How low inflation can compound errors

Here is what looks at first sight like a straightforward GCSE question; if you buy a computer with 500 megabytes of hard disk memory for 20 per cent more than you paid a year ago for an old older machine with 100 megabytes, what is the rate of computer price inflation? In the hands of economists, however, such questions have been turned into a whole new and highly contentious area of academic study.

This week the eminent economist Michael Boskyn claimed that US inflation has been overstated by about 1.1 per cent a year as a result of such improvements in quality. In the UK, the Bank of England has estimated the overstatement at between 0.35 and 0.8 per cent. Roger Bootle of HSBC says most economists come up with figures around 1 per cent.

Meanwhile, the Office of National Statistics, with typical statisticians' caution, believes it is probable, though not certain, that there is some overstatement built into the RPI, but thinks it is nowhere near the top of the Bank's range.

The main measurement difficulties are that there is a continual improvement in the quality of goods and services, consumers are becoming increasingly sophisticated in chasing special offers and they are also prone to substitute one product for another when the price changes. The ONS is in the middle of a big project to refine collection and measurement, which may include allowances for quality improvements in products such as cars, computers and audiovisual equipment.

The debate is of more than academic interest, however. Any overstatement hardly mattered when inflation was 10 per cent, but when it is around 2.5 per cent a small error looms large. If inflation has been overstated, it also means that economic growth has been consistently understated, because too large an amount has been deducted from the national product when adjustments are made for prices. Furthermore, indexing of tax and benefit is also profoundly affected by any adjustment to the inflation measure. There is thus a powerful incentive to the Treasury to eliminate any upward bias in the figures.

New name, same old problems at British Gas

British Gas will be hoping that a new name marks a new beginning, but for Sid the misery goes on and on. Investors were given a lot to take in yesterday with a whole string of announcements, not least the new name for the supply business, "Centrica". Directors say this was easily the best of three possible choices by the leading marketing consultancy, Interbrand, which was paid pounds 250,000 for its services. In truth, Centrica is no worse than any of the other recent rebranding exercises. Who thought much of the name "Zeneca" when ICI unveiled it a few years ago? "Concert", the new name for British Telecom, hardly sets the pulse racing either.

But behind the new facade, the same old problems remain. Centrica's first task is to restore public confidence in service standards as well as attempt to field the onset of competition in its core domestic supply business. The new board, assisted by a sensible choice of non-executive directors such as WH Smith head Bill Cockburn, will undoubtedly work like mad to keep the company's market share above 50 per cent. Even so, Centrica shareholders will have to wait a very long time for their first dividend.

Which leaves "BG PLC", the pipeline operation entangled in a bitter row with Ofgas over pipeline charges. If it loses in the Monopolies Commission lottery, then the company claims it would wipe pounds 400m off after tax profits. Last year it only made pounds 391m after tax, so Sid can kiss goodbye to much of a dividend there as well. Even if BG comes off better than expected, the dividend is still going to be cut.

So it was no surprise that yet again yesterday British Gas was playing down any possibility that the demerger will realise additional value for shareholders in the near future. Who knows? British Gas's screams of pain may be little more than bluff, the case as presented for consumption by the MMC. Perhaps there are huge hidden costs which can be cut out, unlocking real value for shareholders. Then again, look what happened the last time British Gas slashed staff numbers; too many people left and service standards suffered. The shares may look oversold for the moment, but Sid is going to have to wait quite a while to see them return to anywhere near their former glory.

News
peopleHowards' Way actress, and former mistress of Jeffrey Archer, was 60
Sport
Romelu Lukaku puts pen to paper
sport
News
Robyn Lawley
people
Arts and Entertainment
Unhappy days: Resistance spy turned Nobel prize winner Samuel Beckett
books
PROMOTED VIDEO
News
people
Life and Style
Troy Baker and Ashley Johnson voice the show’s heroes
gamingOnce stilted and melodramatic, Hollywood is giving acting in video games a makeover
News
i100
Life and Style
Phones will be able to monitor your health, from blood pressure to heart rate, and even book a doctor’s appointment for you
techCould our smartphones soon be diagnosing diseases via Health Kit and Google Fit?
News
people
Extras
indybest
Travel
Ryan taming: the Celtic Tiger carrier has been trying to improve its image
travelRyanair has turned on the 'charm offensive' but can we learn to love the cut-price carrier again?
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Sport
Usain Bolt confirms he will run in both the heats and the finals of the men's relay at the Commonwealth Games
commonwealth games
Life and Style
Slim pickings: Spanx premium denim collection
fashionBillionaire founder of Spanx launches range of jeans that offers 'thigh-trimming construction'
News
Sabina Altynbekova has said she wants to be famous for playing volleyball, not her looks
people
News
i100
Life and Style
tech'World's first man-made leaves' could use photosynthesis to help astronauts breathe
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Senior Investment Accounting Change Manager

£600 - £700 per day + competitive: Orgtel: Senior Investment Accounting Change...

BA/PM,EMIR/Dodd-Frank,London,£450-650P/D

£450 - £650 per day + competitive: Orgtel: My client, a leading bank, is curre...

Senior Analyst - ALM Data - Banking - Halifax

£350 - £400 per day + competitive: Orgtel: Senior Analyst, ALM Data, Halifax, ...

Java developer - Banking - London - Up to £600/day

£500 - £600 per day: Orgtel: Java developer - Banking - London - Up to £600/d...

Day In a Page

Save the tiger: The day America’s love of backyard tigers led to a horrific bloodbath

The day America’s love of backyard tigers led to a horrific bloodbath

With only six per cent of the US population of these amazing big cats held in zoos, the Zanesville incident in 2011 was inevitable
Samuel Beckett's biographer reveals secrets of the writer's time as a French Resistance spy

How Samuel Beckett became a French Resistance spy

As this year's Samuel Beckett festival opens in Enniskillen, James Knowlson, recalls how the Irish writer risked his life for liberty and narrowly escaped capture by the Gestapo
We will remember them: relatives still honour those who fought in the Great War

We will remember them

Relatives still honour those who fought in the Great War
Star Wars Episode VII is being shot on film - and now Kodak is launching a last-ditch bid to keep celluloid alive

Kodak's last-ditch bid to keep celluloid alive

Director J J Abrams and a few digital refuseniks shoot movies on film. Simon Usborne wonders what the fuss is about
Once stilted and melodramatic, Hollywood is giving acting in video games a makeover

Acting in video games gets a makeover

David Crookes meets two of the genre's most popular voices
Could our smartphones soon be diagnosing diseases via Health Kit and Google Fit?

Could smartphones soon be diagnosing diseases?

Health Kit and Google Fit have been described as "the beginning of a health revolution"
Ryanair has turned on the 'charm offensive' but can we learn to love the cut-price carrier again?

Can we learn to love Ryanair again?

Four recent travellers give their verdicts on the carrier's improved customer service
Billionaire founder of Spanx launches range of jeans that offers

Spanx launches range of jeans

The jeans come in two styles, multiple cuts and three washes and will go on sale in the UK in October
10 best over-ear headphones

Aural pleasure: 10 best over-ear headphones

Listen to your favourite tracks with this selection, offering everything from lambskin earmuffs to stainless steel
Commonwealth Games 2014: David Millar ready to serve up gold for his beloved Scotland in the end

Commonwealth Games

David Millar ready to serve up gold for his beloved Scotland in the end
UCI Mountain Bike World Cup 2014: Downhill all the way to the top for the Atherton siblings

UCI Mountain Bike World Cup

Downhill all the way to the top for the Atherton siblings
Save the tiger: The animals bred for bones on China’s tiger farms

The animals bred for bones on China’s tiger farms

The big cats kept in captivity to perform for paying audiences and then, when dead, their bodies used to fortify wine
A former custard factory, a Midlands bog and a Leeds cemetery all included in top 50 hidden spots in the UK

A former custard factory, a Midlands bog and a Leeds cemetery

Introducing the top 50 hidden spots in Britain
Ebola epidemic: Plagued by fear

Ebola epidemic: Plagued by fear

How a disease that has claimed fewer than 2,000 victims in its history has earned a place in the darkest corner of the public's imagination
Chris Pratt: From 'Parks and Recreation' to 'Guardians of the Galaxy'

From 'Parks and Recreation' to 'Guardians of the Galaxy'

He was homeless in Hawaii when he got his big break. Now the comic actor Chris Pratt is Hollywood's new favourite action star