Published On: Fri, Jun 19th, 2015

Service-based pensions face their Waterloo 200 years after the battle

As a common soldier, John Guthrie was, in the words of the Duke of Wellington, “the scum of the earth”. His descendants, of whom Lombard is one, are nevertheless immensely proud of him: he was one of the first working class Britons to belong to a big occupational pension scheme. Also, he fought in the Battle of Waterloo.

What happened afterwards has resonances in a modern UK where defined benefit schemes are imposing a heavy burden on state and private sector finances.

Great-great-great-great Grandpa Jock received an enhanced annuity for his involvement in the tussle outside Brussels. A grateful nation added two years to his service record of seven years as a gunner in the Royal Horse Artillery.

Whether he then received his 5d (£2.50) per day is moot. He carefully preserved his pension papers, perhaps as supporting evidence for arguments with a local army paymaster skilled in stonewalling sabre-scarred Scotsmen. “Stoppages” reduced some veterans to begging at a time when the national debt had spiked to 240 per cent of output.

Others among the 140,000 who demobilised after Waterloo swapped their pensions for land in the colonies.

The current government does not have the option of running down its £1.3tn pension deficit by doling out patches of Canadian wilderness to retiring dinner ladies. It pretends and extends instead, while switching workers from final salary to less onerous career average schemes.

The private sector’s pension deficit has ballooned to £240bn as discount rates have dropped. The weakest businesses are shedding the problem by going under, making disposals or striking barter deals with trustees that increase risks for members.

The era of service-based company pensions will be over by mid-century. Where the private sector leads, the public sector may follow. Market risk will shift steadily from the group to the individual. But independent provision will allow a minority to dodge the musket ball of a failed or diluted collective scheme. Gratitude for a job well done does not always outlast the deed, as Waterloo veterans discovered.

Gunner Guthrie left behind his pension papers and his sword. That lives under Lombard’s bed. You never know when Boney might make a comeback.

Lloyds of the rings

Lloyds boss António Horta-Osório is as keen on “accepting and moving on” as any therapeutic counsellor. In 2011 he opted to stop fighting claims for mis-sold payment protection insurance, forcing other banks to do the same. Now he is urging them to go with the flow of UK bank regulation and embrace ringfencing of their retail operations.

This is easier for Lloyds, which does not have an investment bank, than for HSBC. The Honks ‘n’ Shanks recently warned that the ring fence and the bank levy could drive it from the UK.

The ring fence has some logic to it, theoretically sparing taxpayers from bailing out retail banks whose investment banking offshoots have failed. In contrast, the bank levy, set at 0.21 per cent of liabilities at the last Budget, is unfair when applied to a lender largely active outside the UK, such as HSBC. And it is distortive in focusing on a single sector. Next month’s Budget provides the chancellor with an opportunity to start winding it back.

Poundedland

Typical of the chief executive of Poundland to open his maiden full-year results by imitating a parson. The Irreverend Jim McCarthy was having a dig at the churchy architecture of JPMorgan’s London office. He could as easily have been baiting bears who are reading the last rites over the growth prospects of the single-price retailer.

Poundland hit targets set during last year’s initial public offering, raising underlying profits 10 per cent to £60m. But the shares slipped because of a disappointing sales update, before finance director Nick Hateley talked up plans for store openings ahead of crucial Christmas trading. That left the stock 24 per cent below its February peak and no higher than its 300p float price.

Poundland is a robust and well-run business, as anyone who has visited its headquarters in the bohemian environs of Willenhall will attest. However, the idea of selling food and homewares at a quid a pop hardly counts as defensible intellectual property. Poundland is heavily exposed to competition from such other cheap and cheery chappies as B&M.

Mr McCarthy has high hopes for a Spanish expansion and a Tommy Walsh DIY range. British retailers mostly fail overseas, while Ground Force, the gardening TV show featuring the cockney builder, is as passé as the decking he habitually substituted for plants. The stuff in the stores is better value than shares which have a forward earnings multiple of 23 times.

 

[“source – ft.com”]