View from City Road: Public sector pension funds beware

Professor Roy Goode, who was asked to come up with recommendations for running pension funds in the wake of Mr Maxwell's massive theft, should use some of the extra time he has gained to consider the Government's recent skirmishing with pension funds.

Norman Lamont, the Chancellor, fired a warning shot in the Budget, with the imposition of ,in effect, a tax penalty on the funds' huge equity holdings. This was presumably designed to make them buy gilts instead of shares and so help the Government's funding requirement. If, as looks likely, the funds do not oblige, they will lose pounds 600m of annual income.

As well as tackling the overall tax status of pensions, the Government is taking pot shots at individual funds in the public sector. First, it suggested splitting British Rail's fund in two and transferring a large part of the assets to its own coffers to cover pensions payable to former BR employees. This device would cut the public sector borrowing requirement by a useful pounds 4bn or more.

While apparently staging a tactical retreat on BR's pension fund, in the face of a hostile reaction, the Government has shown no let-up in its overall campaign. Most controversially, it has agreed to back British Coal's legal claim to retain pounds 480m owed to the staff fund, which is in surplus.

At first sight its case might sound reasonable enough. After all, why should hard-pressed British Coal use taxpayers' money to put more cash into an already overfunded pension scheme? The payment could even be returned if there is any share-out of the surplus.

But that would require the agreement of the trustees who say British Coal has a contractual obligation to produce the money.

The Post Office, local authorities and other public bodies should be warned. The Government is on the prowl.