James Moore: Expect the words 'pension' and 'black hole' to stay linked for some time yet
Outlook Is the word "pension" inextricably linked to bad news? It really is hard to draw any other conclusion from the industry chatter, the latest bit of which came out yesterday. According to the pension consultant William Mercer, the combined funding black hole of schemes run by Britain's 350 biggest companies has increased by £17bn over the year to the end of March, despite those companies making £20bn of contributions.
Oh dear. Those headlines make it look like the money is going into a bottomless pit. What the raw numbers don't do, however, is explain the context.
Part of the problem is that in combining the pension schemes of all 350 companies in the FTSE 350 index you end up with a truly vast number. So vast, indeed, that relatively small shifts in the combined value of the schemes' assets or their liabilities can still produce very big numbers on their own.
The £17bn that Mercer talks about is actually a rather small percentage of the total (but isn't half useful for touting for business).
Those involved with company pension schemes are still, however, tearing their hair out because they say it will get worse. Government bonds, or gilts, are very important to pension schemes and with the Bank of England buying so many of those up as a way of stimulating the economy, the returns they provide are pitiful. Bad news for pension funds, great news for finance directors. Never have they had such a benign climate for raising cash on the bond markets. High-quality corporate bonds yield only a fraction more than gilts, so it's a great time to raise money to build up a war chest for a deal or two or even for doing unfashionable things like investing in the business.
You might think that it would also be a great time for finance directors to look at dealing once and for all with their pesky pension funds. Even if the benign financial climate doesn't persuade companies to pay in more (admittedly the economic climate isn't so cheery) there are things that can be done to better match scheme assets with long-term liabilities, in lieu of dumping them off on the Government, à la Royal Mail.
The problem is that doing this tends to be complex, expensive and a bit dull. It certainly doesn't buy much credit from City analysts when compared to the red meat of, say, another interminable cost cutting drive.
So we'll be seeing scary numbers like Mercer's for sometime to come. And the firm won't be short of work, given that standard practice in the FTSE 350 these days is not to do any work which you could pay a consultant vast amounts to do for you.
- 1 Migrant crisis: Greek soldier saved 20 people singlehandedly off Rhodes beach
- 2 The confessions of men who ordered mail-order brides
- 3 UK weather: Britain braced for snow as arctic air mass moves in
- 4 Aaron and Melissa Klein: Oregon anti-gay bakers ordered to pay $135,000 after refusing to make cake for same-sex wedding
- 5 'Isis' schoolgirls: Missing British teenager tweets picture of her Syrian takeaway
Migrant crisis: Greek soldier saved 20 people singlehandedly off Rhodes beach
Aaron and Melissa Klein: Oregon anti-gay bakers ordered to pay $135,000 after refusing to make cake for same-sex wedding
UK weather: Britain braced for snow as arctic air mass moves in
Power of Nepal earthquake was equivalent to 20 huge atomic bombs
Nepal earthquake video: Terrifying footage shows moment avalanche hit Everest Base Camp
General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband
The sickening truth about food banks that the Tories don't want you to know
Migrant boat disaster: Ukip candidate mocks victims in sickening Twitter post
Nigel Farage wants the BBC to stop making programmes like Doctor Who, Strictly Come Dancing, and Top Gear
Global warming: Scientists say temperatures could rise by 6C by 2100 and call for action ahead of UN meeting in Paris
General Election 2015: Britain would become a 'communist dictatorship' under Ed Miliband and Nicola Sturgeon, claims wife of Michael Gove
iJobs Money & Business
£20000 - £60000 per annum: Recruitment Genius: Are you recently QCA Level 4 qu...
£20000 - £22500 per annum + OTE £30K: SThree: SThree Group have been well esta...
£25 - 30k: Guru Careers: We are seeking an Application Support Analyst / 1st L...
£45K - £55K (DOE) + Benefits: Guru Careers: We are seeking a full stack .NET D...