Pensions U-turn begins

THE great pensions U-turn is under way. A decision by the Accounting Standards Board to postpone the implementation of FRS 17, which requires corporate Britain to quantify pension shortfalls in its annual accounts, must be regarded as a climbdown.

Gordon Brown signalled the beginning of the end of the traditional company pension when he removed pension funds' dividend tax credits. The fall in the stock market quickened the pace and the accountants crystallized it by demanding full disclosure in the annual report.

Arguably, if the Accounting Standards Board had not demanded full transparency for pension liabilities, this year's stampede out of defined benefit schemes, which has become a preoccupation for almost every FTSE finance director and audit committee, might not have happened.

But it would be a brave investor or analyst who argues against full disclosure at this stage. The Enron, Xerox and WorldCom accounting fiascos in the United States have underlined the need for more honest auditing. Quantifying pensions liabilities is part of that.

It is, of course, possible to argue that pensions are for life, not for the short term, so it makes no sense to quantify liabilities on an annual basis. But this assumes that companies are static creations that never change over time and that investors are not interested in real earnings.

They have to be. Take, for instance, BT (in which I hold a few shares) where the pension fund gap at the end of March was £1.8bn. Brokers JP Morgan estimate the gap may now have risen to £4.2bn. At present, BT is putting £200m a year into the fund, with the aim of eliminating the deficit. But, in present market conditions, this is like running on the spot.

Fulfilling pensions commitments is a solemn obligation for companies and investors have a right to complete information. Under these circumstances, the minimum disclosure is a note to the accounts.

In the light of present circumstances, the ASB is willing to compromise on the purity of published accounts.

That is its contribution to dealing with the present crisis. Government needs to act, too. It is no good the Treasury simply promising that it will soon publish reports on long-term savings and will act in the autumn. Those whose peaceful retirement is threatened need action now.

One elegant idea put forward by the Association of British Insurers is that the government offer a Pension Contributions Tax Credit - a tax break for those employers who step up their contribution levels.

This would improve the economics of company schemes without Brown and the Treasury being forced into restoring the tax credit on dividends. It would be a useful surprise item in the Comprehensive Spending Review. But don't count on it happening.

A French affairbr>

THE French like to do things their own way. So the decision of Vivendi boss Jean-Marie Messier to announce his widely anticipated departure from the Vivendi Universal board to Le Figaro newspaper, before disclosing it to the stock market, was novel. As is his insistence on a French successor.

But Messier and Vivendi are in no position to dictate to anyone at present. The shocking 25% decline in the company's share price, demands by Messier for a hefty pay-off and the suggestion that Vivendi's accounting could be ropey have knocked more than the glamour off this stock.

Not so long ago, Messier was stalking Rupert Murdoch at BSkyB. Now it has been his turn to be stalked by his largest shareholders, most notably Edgar Bronfman Jr, who is none too pleased to see his investments in the media sector savaged.

Bronfman's influence, and that of Barry Diller, head of Vivendi Entertainment in the US and one of the shrewdest people in the American media industry, should not be underestimated.

It was always assumed that, if push came to shove, the cash generated by Vivendi Environnement (the utility offshoot) would ensure that the media group could pay its debt. Standard & Poor's is now casting doubt on that, and every fall in the share price makes bankers and bondholders more nervous about the group's balance sheet.

No doubt, Vivendi has some good assets. But, without a coherent management team that can bridge the gap across the Atlantic, it is difficult to know how this enterprise will be held together. Its takeover of Southern Water in Britain (still subject to regulatory approval) should be postponed until there is more clarity.