Thursday was Pension Awareness Day, perhaps to make up for the other 364 days of the year when we are blissfully unaware. Still, it’s over now, so we can continue to pretend that saving pennies from our wages will somehow transmute into world cruises when we retire.
Auto-enrolment, the mechanism for collecting the pennies, has now extended its baleful shadow over even the smallest, most transient businesses. At first, sacrificing 1 per cent of your gross salary is merely an irritant, but by 2018 it will be 4 per cent, a nasty kick in the take-home pay when wages are rising at half that rate.
The employer must contribute at least as much, turning the whole exercise into a new payroll tax at 8 per cent, on top of income tax and National Insurance. Worse still, this sacrifice will not fend off poverty in old age. The Bank of England rather let the moggie from the box this week. Its pension scheme is in surplus, unlike a rapidly-rising number of corporate schemes, but to achieve this, it paid in 54.6 per cent of the salary bill last year.
Fortunately for the BoE employees, they contribute nothing directly from their own pay, or they could scarcely afford to get to work. The scheme is particularly helpful to the top executives. For example Andy Haldane, its chief economist, will retire on an inflation-proofed £84,000 a year, enough for plenty of cruises, if not quite his own yacht.
Despite this, Mr Haldane does not think much of conventional pensions as the best way to save, telling The Sunday Times that he prefers property, while appearing to have only the vaguest idea of the true value of his promise to pay from the BoE. Now Mr Haldane is supposed to be one of the bright sparks of Threadneedle Street. Featured in Time magazine’s Top 100 most influential in 2014, he was expected to bring new ideas to bank regulation.
If he had any, he has run out of them now. His admission that he plumps for property is hardly an endorsement of government policy, while his justification of the last rate cut as “jobs before savers” is laughable. It merely gives another twist to the house price spiral, puts bank margins under more pressure, and undermines the solvency of pension funds.
The Monetary Policy Committee demonstrated again this week that it really has no more idea of what to do than the rest of us, reduced to hinting at another futile cut in Bank Rate before Christmas. Like his colleagues, Mr Haldane is insulated from the consequences of his actions, but he at least should see what is happening away from government-backed pension promises, among those who cannot take advantage of the ballooning asset prices the BoE’s policies have spawned.
It would be a comfort to the rest of us if the BoE’s chief economist had enough confidence in his bank’s policies to put his savings to productive use. Adam Smith, and many others since, pointed out that property by itself does not generate wealth. Such an old-fashioned view, yes?
Incoming at Cobham
Should John Devaney, the chairman of Cobham, find the air refuelling group at the wrong end of an incoming fighter, as was suggested this week, he can always turn to Bank of America Merrill Lynch to repel boarders.
The bankers have faithfully supported Cobham through its troubles. They advised on the transformational $1.5bn purchase of Aeroflex in 2014, which brought, ahem, grave financial and operational issues that somehow escaped the due diligence. In addition, the bankers’ financing was not as clever as it might have been.
Still, when it all went terribly wrong, there was BofA on hand to organise a £500m rescue rights issue. The bankers helped underwrite the offer, and helped themselves to £20m for taking the risk that the price would plunge by 45 per cent in a fortnight, to 89p, and nobody would want the shares. They never got below 135p. Even following a new profit warning last month, the shares are 170.6p.
After such disasters, it is hardly surprising that both chief executive and finance director have had to eject, and the talk is, inevitably, of an offensive from another defence company. Still, never mind. Mr Devaney can always rely on his friends at BofA for their valuable advice.
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