mast image

Impact Investing

IPE special report May 2018

Sections

UK budget condemned

The UK pension industry has united to condemn Chancellor Gordon Brown's budget raid on pension funds, claiming that the abolition of Advance Corporation Tax credits will cause industry turmoil.

Prior to the budget, for every £80 dividend a pension fund received, it could reclaim a further £20 from the Treasury but this has been abolished.

Estimates of the cost to pension funds varied from £2.5 to £3.5bn each year with some suggestions that the tax had made a £60 to £70bn hole in assets.

A Mercer's survey, concurrent with the budget, showed that while most schemes in the FTSE 100 were in surplus, numbers in deficit would rise from 9% to 40%.

The National Association of Pension Funds (NAPF), following a voc-iferous lobbying effort, called it the biggest attack on funded pension provision since the war".

NAPF chairman, Peter Murray added: "This measure will take over £50bn of extra pension contributions from public and private sector em-ployers over the next ten years. Even Robert Maxwell only took £400m."

Predicted changes included re-duced company profitability due to increased contributions, increased interest in gilts and overseas equity, a change from final salary schemes to defined contribution (DC) and an abrupt end to companies and employees opting out of the State Earnings Related Pension Scheme with the possibility of some seeking to opt back in.

The Pensions Management Institute also predicted a rise in Council Tax as local authorities met fund shortfalls.

Dividends payments were likely to become less generous with Kleinwort Benson, among others, suggesting a move to share buy backs and pension fund valuation on a mark-to-market basis.

Post budget, an Arthur Andersen survey of 50 companies showed 80% reviewing scheme structure, 67% predicting a move to DC with 92% re-viewing investment policy.

A Kleinwort Benson study, while dismissing suggestions of a £60bn hole, said that in year one to make up the shortfall to 90% of the government's minimum funding requirement (MFR) would require £1bn from corporates with up to £2.6 bn required over the next five years to bring it back to100% of MFR.

To date, however, the only contributions increase has come from steel distributor Glynwed which last month announced plans to set aside £3m in this half year.

The 100 Group of Finance Directors sent a letter to the Chancellor last month, signed by Richard Lap-thorne, finance director at British Aerospace, calling for a re-consideration of the basis for calculating MFR in the light of the budget.

Many pension funds may be waiting until ongoing discussions on MFR between the Institute and Faculty of Actuaries (IFA) and the Department of Social Security are concluded next year.

John Lappin"

Have your say

You must sign in to make a comment

IPE QUEST

Your first step in manager selection...

IPE Quest is a manager search facility that connects institutional investors and asset managers.

  • QN-2436

    Asset class: Real Estate - Core Open-ended Real Estate Equity Fund (non-listed).
    Asset region: Asia Pacific.
    Size: Approx. CHF 70-100m per investment.
    Closing date: 2018-05-25.

  • QN-2438

    Asset class: High Yield Bonds.
    Asset region: US.
    Size: USD 300 million.
    Closing date: 2018-05-25.

  • RE-2441

    Closing date: 2018-05-31.

Begin Your Search Here