Marconi pensions - Adrift in the markets

In the first deal of its kind, a major pension scheme has been spun off from its parent company to make the business more attractive to investors.

Submitted by Freedom on November 27, 2005

A 75% majority of the telecom equipment maker firm Marconi has been sold to telecommunications giant Ericsson for £1.2bn. But the £2.5bn pension scheme has been 'ring fenced' and set up as a separate entity on the stock market, rebranded as Telent.

Of the money Ericsson have paid, approximately £675m has been put aside for the fund, with £185m paying off holes in its finances and £490m going into a separate account. In return for this, the company was able to effectively cut all ties with the pension scheme, which has roughly 68,000 members, and no longer has any connection or liabilities if it goes under.

Companies have been particularly shocked by the size of the pension payment, as Marconi had only declared a £109m deficit in its accounts. But business analysts have predicted that this will be the first of many pensions cut off from their parent companies, as major corporations search for ways to limit their liabilities.

Previously forced to find money through the sale of assets, or through paying substantially higher contributions, companies are expected to jump at pensions ring fencing, an idea imported from the US. The end result, it is thought, will be the creation of a shadow stock market, with pension company shells being bought up by 'zombie fund' companies hoping to make quick profits. If Telnet falters, the government's pension protection fund, itself under heavy criticism for being too weak to handle the crisis as it stands and the subject of intense company lobbying to weaken it still further, will have to guarantee the final salary pension.

There is likely to be little support for the shells once they appear on the market. One business writer explained in the Telegraph: "The gamble in this case seems to hinge on the suspicion that when the last pension is paid, there will be money left in the fund which could be distributed to shareholders. A vain hope, I should have thought, given the latest news about us all living even longer."

The sale of Marconi will have more direct results too. Ericsson have admitted that it is likely that approximately 1,500 jobs will go from the company, alongside the payment of a £4m windfall for its chief executive Mike Parton.

ADDITIONAL:
David Blunkett has been replaced (see comment, page six) as Work and Pensions secretary by John Hutton. Hutton, a staunch Blairite, is likely to continue his predecessor's plans to raise the age of retirement for new government workers to 65, and will preside over the introduction of a disability green paper later this year.

The controversial green paper, which puts forward proposals to send one million disabled people back to work, will threaten withdrawal of incapacity and housing benefits. He will also present the final report of the Pension Commission on November 30th, which is expected to raise concerns about the state of both public and private sector pensions.

The new cabinet member is likely to clash with the unions. Radical changes are urgently needed on women's pensions where only 30% qualify for a basic state pension and only 38% contribute towards a private pension, according to the Trade Union Congress (TUC).

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