Future pensioners from Marks & Spencer and Invensys can sleep a little easier. Their employers have increased their chances of getting paid after they retire. Not that there was much doubt about St Michael’s promise, since he transferred £50m a year of shop rents to the pension fund five years ago, and bumped up employer’s contributions to an eye-watering 25per cent.

Since then the Bank of England’s buying spree has inflated the value of the fund’s bond portfolio even faster than longevity is increasing its liabilities. Never mind that fixed-interest stocks now look desperately dear, while M&S retirees are likely to go on living longer. The point is that the deficit is now too small to worry shareholders.

Until last week, the same couldn’t be said of Invensys, which was starting to look like a pension liability with a sideline in engineering. Now with one bound it is free, thanks to the trophy price Siemens is paying for its rather dull rail business. Half the proceeds underwrite the pensions, and half will go to shareholders.

Invensys was put together using the black arts of acquisition accounting, and its subsequent pension problem effectively prevented it investing enough to become a major player. Before this sale, it seemed that the future was mortgaged to the pensioners, to the point where their survival was more likely than the company’s.

Once upon a time, pension funds would support investment indirectly, through their share portfolios. Now, under the actuarial cosh, they are forced to buy bonds at almost any price because shares are considered too risky. Yet unlike gilts, which are merely another liability on future taxpayers, shares are drivers of growth and future prosperity, without which pensions become unaffordable. Today’s actuaries strive for the perfect portfolio, where holdings of government debt precisely match the fund’s liabilities. But in what sense is such a portfolio any more “funded” than the promise to pay the pensions of civil servants?

Barclays says get lost

From January, hidden commissions on financial products are banned. Advisers must charge a fee to eat, in contrast to the current set-up where they are slipped something tasty by the producer while pretending their advice is a free lunch. Welcome to the Retail Distribution Review, an attempt to show the punters how much (or little) of their money actually goes into what they are buying.

The new-look Barclays is pioneering here, with a transparent fee structure. Clients using its advisory investment service will pay 0.75 per cent on their first £1m, falling to a mere 0.6 per cent thereafter. That’s just to keep the assets warm at night. Structured products (rule one of successful investing: never buy a structured product) will cost 0.7 per cent on the first £100,000, while share commission is 1 per cent up to £100,000.

If you want a portfolio manager you’ll need to find at least £5m, and he’ll charge you 1.25 percent even if he does nothing, so after a decade he will have eaten an eighth of your wealth, plus the trading commission. Barclays’ glasnost demonstrates the truth in Woody Allen’s definition of a stockbroker: someone who invests your money until it’s all gone. No wonder so many of us reckon that we can do that without professional advice.

An unwelcome legacy

Ah, the fading glories of the summer of sport. The site of the 2012 Olympics is rated at £37.5m, which means an annual bill of £18m, but the London Legacy Development Corporation is arguing that it’s either empty or a building site. It wants to pay for the “areas of beneficial occupation” and be let off the rest.

It’s unlikely that the Valuation Office Agency will play this game, since private sector owners struggling to fill their properties get short shrift with the “areas of beneficial occupation” argument. Of course both sides are tentacles of the state, but that doesn’t help the LLDC in its struggle to make the “legacy assets” pay.

The spat is itself a legacy, of the last government’s wizard wheeze to force property owners to take a tenant, any tenant. Unfortunately, the LLDC can’t follow the approach of some desperate landlords, and take the roof off, since the stadium hasn’t got one.

This is an updated version of my column in last Saturday’s FT

http://www.ft.com/cms/s/0/5656339c-3b00-11e2-bb32-00144feabdc0.html#axzz2DyWoblpa

 

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