TONY BLAIR is preparing for a big struggle with the Chancellor over measures to avert a pensions crisis, reports the Financial Times.
The paper claims Downing Street officials say Blair is determined to press ahead in the spring with a radical overhaul of the pension system, following the recommendations of the independent commission headed by Lord Turner.
But Gordon Brown remains sceptical about the need to scrap a system built on means-tested credits, which has allowed him to channel resources to the poorest pensioners since 1997.
This dispute will have to be resolved if the government is to come forward with significant proposals in the pensions reform white paper promised for March.
To head off the impending crisis, Lord Turner proposed a more generous basic state pension linked to earnings, partly paid for by a rise in the state pension age to at least 67, and a new low-cost private scheme with automatic enrolment of staff with a right to opt out and compulsory employer contributions.
The Prime Minister has said the basic structure of Lord Turner’s solution is right, but when the report was finally published his response was lukewarm.
Officials give two reasons for the Prime Minister’s caution. First, he was wary of embracing the controversial idea of compelling employers to contribute to the pensions of their staff. Second, he did not want to pick a fight there and then with Brown following the Chancellor’s “clumsy” attempt to rubbish Lord Turner’s ideas.
But Blair’s aides say he is convinced the present system is unsustainable and has no intention of putting off difficult choices about how to share the costs of an ageing society. “He will have to live with the consequences of avoiding the decisions for quite a long time,” said an adviser, predicting Blair was in no hurry to leave office.
THE PENSIONS "black hole" faced by FTSE 100 companies has grown from £65bn to £75bn this year, according to research by accountants Deloitte & Touche, reports the Guardian.
Gains made by pension funds as a result of strong growth in equities and higher employer contributions have been more than offset by falling interest rates, the paper says.
Deloitte says the value of pension scheme assets increased by 15% over the year, but would have to rise by an immediate, additional 30% for deficits to be wiped out. This month Rentokil became the first FTSE 100 company to close its final salary scheme to current members.
PREDICTIONS of a property slowdown have faded away, with analysts almost united today in declaring house prices to be on the rise again, reports the Times.
Gloomy forecasts at the beginning of 2005 have gradually been reversed during the year with the last major price monitor coming into line by reporting an above inflation rise, it says.
A report today from Hometrack claims that house prices are rising for the first time in 18 months, with prices 0.1% higher in December.
The significance of the announcement is that Hometrack has been the most gloomy of all the house price monitors over the past year. With today’s report, all the indicators are pointing in the same direction: up.
As the year draws to a close, it provides an opportunity to paint a picture of the path of house price movements.
The clearest sign of the change has come from Roger Bootle, whose consultancy Capital Economics has been one of the City’s most vocal prophets of a house price slump.
At the start of this year Bootle wrote in a report for Deloitte: “We continue to expect house prices to drop by a total of 20% or so over the next two years, but a bigger fall cannot be ruled out.”
But last week, Capital Economics announced a “forecast change”: noting the lack of a sustained fall in house prices in 2005, they now predict house prices to drop by just 2% in both 2006 and 2007.
A drop of 5% in prices in the next two years would be unwelcome, but would not have a deep impact. This is the way the great house price crash that never was has ended: not with a bang but a whimper.
HEDGE FUNDS have been accused of manipulating their December returns to enable managers to pocket huge incentive fees, reports the Daily Telegraph.
A report by Britain's foremost hedge fund academic says in the final month of the year the secretive funds earn more than 2½ times their average monthly return during the first 11 months.
Narayan Naik, director of the London Business School's Hedge Fund Centre,is reported as saying in a paper called "Why is Santa So Kind to Hedge Funds?" that the "December bonanza" could be explained by managers massaging returns to hype their incentive fees.
He is quoted as saying: "The performance in December just stands out. Why should December returns look so high?
"Part of it can be explained by the risks taken and part by the performance of equity markets in December, but those circumstances do not explain it fully. If someone has an incentive fee payable on year-end December figures, there could be more temptation to push them up in December."
The funds generate up to 20% of their incentive fees on performance above "high water marks", or pre-determined benchmarks. Funds performing below those levels seldom pay the incentive fees.
Naik's work comes against a background of mounting regulatory concern at the activities and operations of hedge funds, which have few controls, enabling them to take big bets on a variety of financial markets.
Sir Callum McCarthy, chairman of the Financial Services Authority, told the powerful Commons Treasury select committee last month the watchdog was working with American authorities to tackle delays in trade confirmations and lax disclosure of contract transfers, particularly in the credit risk derivatives market.IFAonline
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