The Great Debate

Why final salary schemes are bad for you

REUTERS — Neil Collins is a Reuters columnist. The views expressed are his own –

So you’d like to work for BP? A fine company, recognisably the same business as half a century ago, and likely to be around in half a century’s time — yup, it’s a fine choice for a career.

It’s going to be an even better one for the ambitious twenty-something, because no-one joining after next March will be able to join its final salary scheme.

These schemes are comfort blankets for pen-pushing civil servants (and, of course, snouts-in-trough British MPs) so if getting into one is the height of your ambition, then perhaps BP can manage better without you.

Schemes where the employer undertakes to pay a pension linked to your salary when you retire, whatever that is, are dying, and quite right too.

Don’t buy this index-linked debt

REUTERS– Neil Collins is a Reuters columnist. The views expressed are his own –

This rather odd chart from Monument Securities says something curious — http://graphics.thomsonreuters.com/commentary/INDEX-LINKED-CURVES.pdf. — It shows that British investors (or at least the buyers of UK Government index-linked gilts) are much keener to buy protection against inflation than the holders of French and U.S. government bonds.

A yield curve plots the return on bonds against their longevity, and this one shows that in all three countries, the short-dated index-linkers promise to be pretty dull investments.

from The Great Debate UK:

A reality check from Standard & Poor’s

REUTERS-- Neil Collins is a Reuters columnist. The views expressed are his own --

Standard & Poor's could have chosen a better day to kick the British economy, by placing the UK onto "negative outlook", the usual precursor to a downgrade of S&P's rating of an issuer's debt.

The move came minutes before the Debt Management Office closed its massive auction of 5 billion pounds of 2014 stock, and minutes after the release of figures showing the Public Sector Net Borrowing Requirement leaping to 8.5 billion pounds in April, a sum which not long ago would have been considered high for a whole year.

Economist Howard Archer at Global Insight immediately called the figure "dire, starting the new fiscal year off as it is highly likely to continue."

from The Great Debate UK:

Labour hits the right nuclear button

REUTERS-- Neil Collins is a Reuters columnist. The opinions expressed are his own --

Here's a novelty -- an awkward process that this British government has actually got right. Labour has played a fine game of grandmother's footsteps in its realization of the inevitability of new nuclear power stations, and this week has clinched the sale of two sites for them.

The auction process, pioneered by Labour with the sale of radio spectrum for mobile phones, has once again raised much more than most observers expected.

Germany's RWE and Eon are now the proud owners of land at Wylfa (on Anglesey, an island off a remote corner of Wales) and Oldbury (Gloucester, England).

from The Great Debate UK:

Don’t say aye, aye to 3i

REUTERS-- Neil Collins is a Reuters columnist. The opinions expressed are his own --

It's hardly surprising that the shareholders in 3i, the listed private equity group, are deeply unhappy at the prospect of having to return 700 million pounds of the 1.75 billion pounds of capital they have received from the company in recent years.

The board has got itself into a hole. That paid-out capital, plus a further 400 million pounds in share buy-backs, was largely financed with borrowed money, and those debts are now coming up for repayment.

A 550 million euro convertible bond launched in August 2003 was designed to provide fresh equity, but it had to be rolled into a 430 million pound convertible bond, and the conversion terms are now pie in the sky. That bond falls due in 2011.