Pensions crisis escalates

By Daily Mail Reporter
Updated: 05:12 EDT, 5 January 2006

THE situation at Britain's final salary pension schemes lurches from bad to worse.

At Arcadia, retail tycoon Philip Green has told staff they must increase their contributions and work longer or have their nesteggs scaled back.

Even the Co-operative Group, which sees itself as an ultra-ethical employer, has decided to ditch three final salary schemes and to replace them with one cheaper 'career average' plan.

The Co-op's course of action is less drastic than the common expedient of dumping staff in a plan linked to the stock market.

It is, however, moving existing staff into the career average plan, in contrast with most previous companies which have only shunted new employees.

As for Green, who paid himself a £1.2bn dividend last year out of borrowed money, he was savaged by the unions. But to be fair to him, he resumed contributions to the Arcadia pension fund after a holiday under previous management, and made good an £80m deficit in the scheme.

What is worrying is that these changes come hard on the heels of a proposal by Rentokil to freeze its final salary pension scheme for existing members. A long list of firms have opted to exclude new entrants, but Rentokil is the first major company to pull the plug on those already in the fund.

Companies in the FTSE 100 index, according to a recent study by accountants Deloitte, are facing a black hole of £75bn, some £10bn more than a year ago.

Life expectancies are rising, which means they face everincreasing pension bills.

It is hardly surprising that firms are seeking to cap their liabilities. The trend towards closing traditional final salary pensions, which have been the backbone of retirement provision in this country, looks inexorable. Even the most benign and paternalistic employers are being forced to look with a hard eye at their pension commitments, and it is ordinary employees who are paying the price.

Aiming high

THE meltdown in shares of BowLeven is another wake-up call to investors at the speculative end of the boom in energy exploration companies.

The shares tanked by 48pc to 165p as it emerged that it had failed to find gas off the coast of Cameroon. So far, the Edinburghbased group has burned £27.5m of shareholders' cash in the past six months with nothing to show for it.

The shares, listed in December 2004 at 363p, peaked at 815p last year, only to fall back in October after it admitted it had not found oil at Biafra Sands in West Africa.

The situation is reminiscent of Regal Petroleum, where exploration prospects in Greece turned out to be empty hopes. White Nile, founded by former cricketer Phil Edmonds, has been another rollercoaster ride, with disputes over its ownership of a stake in an oil project in southern Sudan.

The Aim market has been a massive success in the ten years since its birth, but the travails of BowLeven are the last thing it needs.

The market is already overshadowed by a fraud investigation into a missing £365m at property company Langbar, which joined Aim as a cash shell in 2003.

Another bout of worries over speculative exploration stocks will only generate more poor publicity.

Resources companies make up a huge chunk of Aim, accounting for around £16bn of its total market capitalisation of £51bn. Companies with real assets are one thing, but when it comes to speculative stocks, the old adage of buyer beware cannot be bettered.

Aim's stellar record has been founded on light touch supervision and generous tax breaks. The market, however, must ensure it strikes the right balance on regulation-Too much would swamp fledgling companies and kill the market - too little, and Aim's entire reputation is at risk.

Snowball's chance

INSURER Aviva has rejigged its board so that genial ex-army officer Patrick Snowball takes charge of all the UK businesses apart from fund manager Morley.

The idea is to bring the whole of the UK operations together and to leverage the Norwich Union brand to boost long term savings, which have been in the doldrums for several years.

Philip Scott, head of international life, will take responsibility for all the group's overseas operations.

The latest round of musical chairs is seen by analysts as putting Snowball, 54, in prime position to take over from current chief executive Richard Harvey.

But since the two men are the same age and there is no pressure on Harvey to make an exit, Snowball may find his chances of the top job end up melting away.