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Moore&#39s code

FRS17 sounds like one of those rather sinister abbreviations scientists are fond of using when they talk about nasty new strains of bacteria.

In fact it is a new accounting standard which forces companies to declare shortfalls in final-salary pension schemes on their balance sheets. But the effect it is having on those schemes is rather like a disease – and a fatal one at that because they have been dropping like flies.

Not a month goes by without news of another blue chip company giving up the ghost and closing its defined-benefit pension offering. Much of the blame is being put on FRS17 because of the nasty symptoms it creates on company balance sheets.

It forces them to admit to the shareholders how much their schemes are in deficit,in a way which is likely to make profit declarations of the future look rather grim.

In fact, it is unfair to blame FRS17 entirely, it is really just a catalyst. Falling stockmarkets have left many schemes short of cash and companies are increasingly unhappy about having to divert cash away from their shareholders to bail out their schemes.

The Government has not helped by stealing the dividend tax credit from pension schemes and adding to the burden of regulation. Solution? Close the schemes to new members and go for money purchase. Some employers, such as Ernst & Young and Iceland, have gone even further and closed their schemes to all further contributions.

Estimates suggest that occupational money-purchase schemes will provide 25 to 40 per cent less on retirement than the defined-benefit schemes they replace but there are few employers which will be willing to risk the industrial relations nightmare of telling their staff this nasty fact. So the savings gap gets wider and more gunpowder is added to the demographic time bomb.

As anyone working in the field will tell you, nothing about pensions is ever simple. But describing the current situation in Britain is very simple – it is a mess.

The situation for people who have no company scheme and have to provide for themselves is scarcely any better. Stamp duty on share trading and dividend tax credit have made pension saving increasingly unattractive.

Stakeholder pensions, the supposed solution? They may be cheap but it looks increasingly likely that over the next four or five years there will be only a handful of companies offering a very basic savings products that is a great tax break for the middle classes but which few others feel is worth the effort. More gunpowder for that timebomb.

Tony Blair promised to run a “listening” Government when he came to power in 1997 and listen the Government does. Unfortunately, it does not often hear. Its attitude to the multitude of consultations it puts out seems to be: “We will take your comments, have a look at them and then do what we wanted to do in the first place.”

Pension policy appears to be hopelessly confused and in real danger of reversing the level of retirement saving in this country. That is because at every stage the Government has applied the stick but has failed to produce any carrot.

Defined-benefit schemes? Pile on the regulations, sit back and watch as they close down.

Personal pensions? Make the charges so low that it is scarcely worth the bother for many companies to offer them, while offering nothing to persuade people to buy them, making it difficult to attract enough people to invest to stand even a slim chance of making a profit.

It is not too late to act. A tax concession here, a regulatory easing there and the balance might just tip in the other direction. A willingness to listen a little more and to behave in a less bossy manner might also help a great deal.

The Treasury has done a superlative job of running the economy but its conduct of the financial services industry has been much less than stellar. Crisis is an overused word but it is becoming an increasingly accurate description of the UK&#39s pension provision.

It is not too late to change but action needs to be taken sooner rather than later. I do not envy the IFA who has to confront this situation and tell clients how to make the best of it.


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