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Shell closes its policy of providing new employees with a guaranteed pension

6 January 2012  •  Source: Simon Denham, Capital Spreads

The last final salary pension scheme provided by a FTSE 100 company comes to an end today as Shell closes its policy of providing new employees with a guaranteed pension. This is a significant move which is the last of almost all pension schemes provided by the private sector meaning that many more private sector workers now have to go it alone. It’s not as if Shell’s pension fund has been in trouble as was one of the best funded scheme out there and will have no trouble in keeping up with payments when their existing members retire, but it goes to show that even the Shell is unwilling to take on the liability of such a strain on their balance sheet going forward.

With an ageing population we all know that we’re going to have to work longer and probably for less when we come to retire, which for now the majority of the public sector is unable to appreciate. Even with the proposed reforms if they are finally accepted by the unions do not save the government anything substantial because of the concessions they have had to make so far and in a few years time the issue will have to be looked at again. It’s a contentious issue that’s causing unrest within the public sector but gradually it looks like many within the sector are coming to terms with the fact that the government has no money, it has to make savings and bring these pensions in line to some degree with the private sector in order to make them sustainable. We’ll see more and more private sector schemes follow in this direction inevitability and in time the UK consumer will gradually turn into more of a saver than a spender, which isn’t ideal for the economy in the long run as it relies so much on us to spend.

The FTSE was being called to open higher today, following the close of the Dow last night which managed to hold onto its levels, but overnight both the US futures and our FTSE quote have been dragged lower by weak Asian markets. At the time of writing we’re some 15 points higher, so slightly better than the opening calls would have suggested, but not exactly steaming ahead. The FTSE remains tentatively above its 200 day moving average having broken back above there at the beginning of the year and whilst this is meant to be a signal for further strength, we saw a similar break above here in October which was not sustained. The Dow on the other hand has been above its 200 day moving average since just before Christmas and continues to be kept from making any further gains as Europe continues to drag at its heels. The German Dax is still 300 points below its own 200 day moving average and so lagging substantially and until it makes a concerted move to the upside, gains for the likes of the Dow and FTSE could be limited. We all know what’s needed for the Dax to catch up!

Europe remains the key issue and next week sees the French and German leaders meet for the first time in the New Year. There are also important bond auctions from Spain and Italy which will be closely watched. But before then the focus of today will be the US non-farm payroll number. Following the unbelievable ADP figure yesterday that was double expectations, there’s a great deal of optimism surrounding today’s number. However, as we saw with the ADP figure yesterday any big surprise to the upside may not be met with a frenzy of buying stocks as the European issue continue to dominate.

The euro broke to a new 14 month low yesterday taking it below 1.2800 where it remains this morning at 1.2785. The selling pressure on the single currency doesn’t seem to have abated and this weakness and breakout to the downside really puts it in a downward negative trend. Key levels to watch are 1.2750/20 to the downside and for the bulls 1.2910/60. The euro’s weakness has played into the hands of sterling which has broken the back of the 1.2000 level. GBP/EUR trades at 1.2120 at the time of writing, levels not seen since September 2010.

Gold is flat this morning having seen a decent gain in the past few days recovering ground above the 1600 level. At 1623 this morning the bulls seem to being taking a respite for now and will probably wait to see the outcome of the NFP before committing any further.