Despite recent rises in the value of shares, the pension schemes of Britain’s top 100 companies are in trouble. Pensions are a promise of an income in the future. But the promise can only be kept if the money is there to pay for it. And new research shows that the pension funds in Britain’s biggest 100 companies have £55 billion less than they need. Actuaries Lane Clark & Peacock, who did the research, say they have enough to pay just 80p in the pound of what their employees expect.

The falling stock market has devastated the value of pension funds, already reeling after companies withheld more than £19 billion in good times and then Gordon Brown took £5 billion a year from them by changes to company taxation. Today only a couple of them currently have more money in their pension fund than they need to pay their pensioners in future.

One of them is Boots. In 2001 it announced it had sold all its shares and invested the whole pension fund in bonds – secure promises made by governments of a fixed return. By doing that it matched its assets to its liabilities and it now has the strongest pension fund among the UK’s hundred biggest companies. The others have on average nearly two thirds of their pension funds at risk on the stockmarket – some have more than 80%. Share prices would have to rise by a half between now and next summer to close the gap. No-one expects that to happen. Some companies are plugging it by paying extra money into their pension scheme. Glaxo SmithKline and AstroZeneca paid nearly a billion pounds between them in 2002 to prop up their pension funds. Extraordinarily some still pay in nothing – Rentokil is one despite a £156 million deficit.

The problems may have remained hidden longer but for new rules about how pension funds are valued and how that information is set out in the company’s accounts. The new accounting standard – called FRS17 – exposes the true value of a pension fund and the impact that has on the company’s financial position. The previous rules allowed both to be hidden. Now they must be shown clearly and, from 2005, will form part of the companies’ official accounts.

Pensions linked to final salaries remain a good deal for the employees they cover. But no financial arrangement is without risk. Anyone in their fifties paying into such a scheme should keep a wary eye on the fund – and the health of their employers. In 2005 the government intends to make all companies take out insurance to cover the cost of their pensions promises. Until then no pension promise is truly safe.

Taxing Purchase

Despite continuing legal arguments it looks as though The Madonna of the Pinks by the Italian master Raphael will stay in the country. But at a cost to the taxpayer of a massive £14 million.

The sums work out like this: last year The Duke of Northumberland sold the tiny oil painting to the Getty Museum in Los Angeles for £35 million. The government held up the sale to allow the National Gallery to match the price. In July the Gallery said it had with £11.5 million from a lottery grant and £9.5 million from private donors which, of course, only makes £21 million. But this is exactly what the Duke would have received from the Getty after paying £14 million capital gains tax ; by selling the painting to the National Gallery he will not have to pay any capital gains tax - we all pay it instead, about 50p from each taxpayer in lost revenue. The Duke is still arguing that his tax bill would be a lot less than £14 million – so he wants more than £21 million from the National Gallery. A decision is expected soon.

The Duke’s painting is not the only ‘Raphael’ Madonna in the country which has escaped tax. Under a little known scheme, Capital Gains Tax and Inheritance Tax can be avoided on works of art of national importance if they are available for the public to see. Saga Money has found another Madonna of the Pinks – in Dorset. Painted on copper it is exactly the same size as the painting in the National Gallery – but its owner says it is ‘after Raphael’. In other words it is a copy – just what the Duke thought about his Madonna until it was declared a real Raphael in 1991 sending its value into the stratosphere. The Dorset Madonna can be seen ten days a year without appointment or at any other time by appointment and that is sufficient for its owner to escape tax; there is another Madonna ‘after Raphael’ privately owned in Dorset, this one seated; and a third Madonna by a ‘follower’ of Raphael is in private hands in Norfolk. There is a fourth painting – not a Madonna – and half a dozen drawings by or ‘after’ Raphael – together with three Picassos, a Monet, five Renoirs, and even a drawing by Leonardo da Vinci are among 90,000 works of art exempt from tax through this loophole.

So if you think you may have a work of art of national importance and you would be happy for the public to pop in and see it from time to time then your family may be able to avoid Inheritance Tax when you leave it to them.

House price confusion
Are house prices going up, down or nowhere? Usually it seems to depend on who you ask. But this autumn the Government plans to create a new standard official House Price Index. There are currently four major house price indices – two from big lenders and two from different government departments. As well as a number of smaller ones trying to get in on the act.

Measuring house prices should be easy. You just add up the sale price of every home sold in a month, divide by the number sold and that is the average. So it is very odd that the average price of a home that was sold in March 2003 was £122,180 according to Nationwide building society, £127,034 if you ask the Halifax, £135,238 from the Office of the Deputy Prime Minister and £145,897 based on Land Registry figures. Similarly they say prices rose on a year earlier by 26.2%, 24.0%, 18.4% or 19.7%. And that is without the complexities of regional differences, old and new properties, bungalow or detached.

The problem is that all four measure slightly different things. Halifax and Nationwide only record the prices of property where they have approved a mortgage – a few thousand out of the 90,000 mortgage sales each month – and not all of those lead to a sale. The quarterly figures produced by the Land Registry are for all properties actually sold - including those without a mortgage, but excluding Scotland. And the separate series produced by the ODPM are based on 3000 sales from 47 different lenders – and also only includes sales that go through. It is this series that will be turned into the Government’s new monthly figure to be launched later this year.

More from www.odpm.gov.uk