A pension holiday is even nicer than it sounds for a company and its shareholders, because it frees up cash that goes straight through to profits. Stock exchanges around the world have been booming for most of the 1980s, and pension fund managers have to have been exceptionally incompetant not to have seen the value of their portfolios rise quite disproportionately to the amount being paid in by and on behalf of employees month by month. And after a few years of raging bull markets, pension funds become so inflated that it makes no sense to go on adding more cash to the fund. The latest company to decide that its pension fund is so bloated that it is time to suspend payments – for a couple of years – is Racal Electronics Plc. Piers Whitehead at Robert Fleming Securities has done the sums, and reckons that the saving will be good for fourpence on the per-share earnings in the year to March 1988; he says that Racal normally pays 4.3% of the payroll into the fund, and puts the total at UKP7m this year, perhaps UKP8m in 1988-89. He’s now going for UKP151.6m pre-tax this year, up from UKP100.3m last, on sales up about 12% at UKP1,450m. But the news was not enough to prevent a fourpenny fall in the Racal share price on a very dull day in the market, Tuesday; up 4p yesterday in early trading, the shares sank back with the market to 281.5p.
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