Working out a pension solution

PENSIONS are going to be in the news again for most of this week.

The Institute of Public Policy Research today suggests an increase in the retirement age to 67 to help pay for a much-improved basic State pension, while tomorrow sees the publication of the long-awaited report from Adair Turner, which is likely to suggest that the pension age should rise in line with increases in longevity.

We talk glibly about a pensions crisis but it is in fact eminently solvable - except that people do not like the answer. There is no point in exhorting people to save more because the majority cannot. Even if people work for 40 years, from 25 to 65, they will never be able to set aside enough to live in reasonable comfort for another 20 years from 65 to 85.

Graduates will be little better placed. By the time they have paid off their loans and top-up fees, and then educated their own children, they will have no money left to save until they are approaching 50, by which time it is too late to accumulate sufficient funds.

This is doubly so because they have a further burden which other post-war generations did not have: they will have to take on a huge loan to buy a house and, in the absence of inflation, that loan will be a millstone around their necks for 30 years. It will not be inflated away - it will cut into their ability to spend and save for a lifetime.

The only solution is to work longer and spend fewer years in retirement. Even a small adjustment of two or three years makes a huge difference to the sums and the State's ability to pay a decent pension. This is so obviously the solution that ultimately it will happen.

It would be nice, though, if for once those whom we elect could plan for it and be honest and open about the need for it, rather than avoid the issue until it is too late to ignore.

Future of Caz

THE future of Cazenove appears to have been settled. JP Morgan is said to be paying just £100m for a 50% stake in the business and lending the broking firm £300m more so it can make substantial payments to shareholders to persuade them to back the deal. There will then be the prospect of further sums to come in bonuses or as a complete buyout if the combined firm prospers.

Cazenove has yet to confirm these figures pending FSA approval, but if they turn out to be anywhere near correct, they are breathtakingly low. This was the firm Goldman Sachs was prepared to pay £2bn for five years ago. Like an internet stock, Caz has joined the 90% club.

Meanwhile there has been a resounding silence about the future of Cazenove's fund management arm, other than efforts being made to streamline the business, and some high-profile departures as a result.

Caz seems willing to entertain offers, but though several firms have looked, no one has come close to meeting Caz's asking price.

Considering its pedigree, Caz's fund management arm has had a remarkably troubled few years. Accentuating the positive, the line is that funds under management grew 19% last year to about £7.6bn.

That sounds pretty good, but what it conceals is that three or four years ago, before the bear market, funds were around £12 billion - or so says one who has flirted with buying the business.

The devastation occurred because Caz, which had been a value investor by tradition, stuck with this style right through the 1990s when it was at its most unfashionable, but then abandoned it in favour of a growth style right at the top of the market.

Its timing could not have been worse, switching when growth stocks were about to plunge. Thus it effectively sold at the bottom and bought at the top, which is why its funds under management fell so sharply. Caz clients have limits to their loyalty and pulled their money out.

It is hard to see this business being of interest to JP Morgan Chase, given its potential for embarrassing underperformance, and it is harder still to see it making any money in its own right because it is too small to have critical mass.

It is in many ways rather reminiscent of the Rothschild fund management operation - a business one would think would have everything going for it and would deliver stellar performance, but was in fact a continual disappointment.

Evelyn Rothschild was always cool on it because the reputational risk was asymmetric. He thought that if it did well, the success would be taken for granted and if it did average to poor, it would tarnish the Rothschild name, so he bit the bullet last year and sold to HBOS.

Its funds are now part of the Insight fund management operation.

The arguments are surely irrefutably in favour of Cazenove's fund management division also finding a similar new home before long.