STOCK MARKETS - THE WEEK IN VIEW : Pension funds await hammer blow
Sunday 29 June 1997
At issue is the fate of the advanced corporation tax credit granted to pension funds and charities that both excludes them from paying tax on dividends received but also gives them a further 20 per cent payment from the Government on top of their dividend intake.
"Our pension funds have traditionally been equity funds, but we've now taken on bonds for the first time," said Simon Smith, an investment manager at Albert E Sharp. "Short-term funds will have to increase their bond holdings and though I don't think they can get rid of the tax credit in one go, the market is already discounting the Government getting rid of it."
Smith said this tax credit has led pension funds to load their portfolios with high dividend paying companies that can be counted on for consistency.
Utilities like National Power, Southern Electric, Anglian Water and Severn Trent have been staples of well-balanced pension funds because of their unwavering dedication to reward investors with healthy dividends.
The FT-SE Water index of eight water utilities has a dividend yield of about 5.3 per cent while the FT-SE Electricity index yields about 8.6 per cent in dividends, compared with a dividend yield of 3.6 per cent for the FT-SE 100 and All-Share indexes.
A cut in the advanced corporation tax credit may complete a one-two punch that could knock the utilities' shares prices flat since they are probably faced with a windfall tax of between pounds 3bn and pounds 5bn.
"If people are looking to maintain a gross yield of 3.5 per cent from their investments, they wouldn't start to buy again until the market fell 20 per cent," said Jim Stride, director of Sun Life Investment Management.
Analysts at BZW warn that the move may hurt most those companies that the Government is trying to give the greatest support to - the manufacturers.
Richard Kersley at BZW said the abolition of the tax credit will hurt profits since companies will have to increase the amount they pay into pension schemes.
"Tax credit change would hit manufacturers the hardest. Is this Gordon Brown's intention?" Kersley asks. "We think not. Look out for a possible offset next Wednesday."
Copyright: IOS & Bloomberg
- 1 Saudi preacher who 'raped and tortured' his five -year-old daughter to death is released after paying 'blood money'
- 2 The awkward moment Sarah Palin raised $25,000 for Hillary Clinton's election campaign
- 3 Ball pool for adults opens in London
- 4 Amal Clooney gives excellent response to fashion question at European Court of Human Rights
- 5 Baldness could soon be treated using stem cells, scientists hope
Woman falls to her death as she celebrates marriage proposal at the edge of Ibiza cliff
Saudi preacher who 'raped and tortured' his five -year-old daughter to death is released after paying 'blood money'
The awkward moment Sarah Palin raised $25,000 for Hillary Clinton's election campaign
Ball pool for adults opens in London
Amal Clooney gives excellent response to fashion question at European Court of Human Rights
9 reasons Greece's experiment with the radical left is doomed to failure
'We would evict Queen from Buckingham Palace and allocate her council house,' say Greens
Have we reached 'peak food'? Shortages loom as global production rates slow
Greece elections: Syriza and EU on collision course after election win for left-wing party
British grandmother Lindsay Sandiford faces execution by firing squad in Indonesia
Liberal Democrat minister defends comments suggesting immigration causes pub closures
iJobs Money & Business
£13000 per annum: Recruitment Genius: This Pension Specialist was established ...
£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...
£25000 - £35000 per annum: Recruitment Genius: A Technical Report Writer is re...
Competitive salary & benefits!: MBDA UK Ltd: MBDA UK LTD Indirect Procurement...