Home truths for would-be pensioners

DEFINED-benefit pension schemes, where pensions are calculated as a proportion of salary, cost employers between 15% and 20% of their wages bill. The expense is manageable and provides workers with considerable comfort.

But the situation is changing. People are living longer and the investment returns that fund pension schemes are lower. In addition, as a result of new accounting rules companies will have to reveal how well defined benefit schemes are performing in their annual profit statements. This could bring wild fluctuations in companies' figures - a prospect that fills them with horror.

It is easy, then, to understand why finance directors are rushing to recommend offering employees defined-contribution schemes - where workers pay set amounts but are given no guarantee of what they will receive on retirement. The trend makes perfect sense for corporate accounting systems but is frightening news for workers, more than half of whom are in company pension schemes.

Investment experts calculate that for people to live comfortably in retirement they need to set aside between 10% and 15% of their salaries over their entire working lives. Those who contribute less in the early days should be putting about a fifth of their wages into a pension scheme by their late 40s. Even this may not be enough and should be supplemented by investments such as ISAs or property.

The advice is not just investment institutions talking their own book. It is the simple truth in a country where the time spent in retirement averages about 15 years and the maximum amount provided by the State is £92.15 a week. In the US, the retirement age has been quietly increased from 65 to 67. As the icing on the cake, expect the same here.

Don't bank on fact

ALLIED Irish Banks might have expected to be rather busy on Wednesday as it told the world $750m (£530m) had mysteriously disappeared from its American offshoot Allfirst. The bank might have guessed it would be besieged with phone calls and worked out that there would be a fair degree of interest in the identity and lifestyle of its very own rogue trader. Yet the behaviour of those responsible for answering questions suggested otherwise.

On Wednesday morning AIB said the alleged fraudster's name was John Resnick. He was in his 40s, had three children and earned $100,000. By the afternoon, Resnick became Rusnak, 40s became 37, three children became two and the pay cheque was reduced by 20%.

At lunchtime, when conflicting reports about Resnick/Rusnak surfaced, attempts to discover the truth were frustrated as a spokesman said he was eating a sandwich and could not be disturbed.

The erroneous personal details and the snack attack could be dismissed as trivial setbacks on a busy day. But they form the backdrop to a string of curiosities emerging from AIB as its fraud saga unfolds .

The bank remains unable to explain how Rusnak could have run up the huge losses over 12 months without any of his supervisors in Baltimore noticing. It also fails to see as a problem the fact that Allfirst made no contact with its Irish parent for at least a fortnight after discovering it might have a problem.

Once Dublin was informed, almost 36 hours elapsed while chief executive Michael Buckley assessed the situation. He was clearly busy, but there should surely have been time to pass on details to his public relations team.

AIB seems to hope the Rusnak affair can be swiftly sorted out with a minimum of pain at home. This is almost certainly a forlorn hope. Its reputation will not be enhanced by a lackadaisical attitude towards communicating with the outside world.

Many a slip...

BANANA Skins 2002, a report into what banks are most afraid of, has just been published. It was compiled from research undertaken last December by the Centre for the Study of Financial Innovation and is richly ironic following the AIB events in Baltimore.

Thirty potential banana skins are identified and listed in order of magnitude. Rogue traders comes a lowly 24th. Banks were confident that controls put in place after Nick Leeson brought down Barings meant a repeat performance elsewhere was highly unlikely. No doubt rogues will feature much more prominently in Banana Skins 2003.

PricewaterhouseCoopers partner John Hitchins wrote in the foreword to the CSFI report: 'It is encouraging to see the general feeling that banks are now better prepared to manage their risks. Although one should never be complacent, it does seem that lessons have been learnt from the past.' If he writes for the think-tank next year, his opinions may be different.

Top of this year's list is credit risk - the fear that companies or individuals who have been lent money will be unable to repay. This becomes increasingly pertinent as one company after another admits to accounting irregularities or excessive debt.

Other big worries include the macro-economy and complex financial instruments, such as those synthetic collateralised debt obligations that so concern Financial Services Authority chief Sir Howard Davies.

Regulation also features highly, surging from 27 on the list to six as banks fret about its impact on their day-to-day operations. This is particularly pertinent given that all the regulation in the world failed to stop Rusnak playing havoc with AIB for at least a year.

If nothing else, CSFI's work shows that banana skins are never where you think they are going to be.

Stripped down

EBITDA is the dotcom-inspired way of calculating profit by excluding everything that might show companies' true losses. Lastminute.com has decided that is not good enough. It says it will be in profit for the three months to June - after stripping out not just interest, tax, depreciation and amortisation but headquarters and research costs too. Welcome to ebitdahr.