Campaigner warns that BP’s DB scheme is creating a worrying blueprint
Companies are using BP as a worrying ‘blueprint’ to offload unwanted pension schemes, a campaigner has alleged.
Nick Coleman, member of the BP Pensioner Group, warned other companies looking to dispose of their closed defined benefit (DB) pension schemes are copying BP, which delinked inflation from its pension scheme payouts two years ago.
Speaking at the Work and Pensions Committee on Wednesday, last week, Coleman outlined that BP’s DB pension fund has £20bn worth of assets and 60,000 members with an average pension of £18,000 a year.
He said the pension fund has always paid pension rises in line with inflation but stopped that two years, despite its surplus.
He alleged: “In the last two pension rise cycles, the linking to inflation stopped and it’s quite shocking. After many different excuses from BP, we were forced to conclude that the reason why it was doing that was to get the fund off its books. There was one world up until the scheme was closed to new members.
“So, we think the scheme, in BP’s eyes, has changed to one that is to be got rid of and to get it off the books in a way that incurs the least cost of getting it off the books.
“The word ‘derisking’ is being used. So, the first thing you do is remove the linking to inflation because it is cheaper to sell it that way. And the more you do that, the more the surplus increases, the more BP can lay claim to the surplus.”
The surplus debate
The sum accounting surplus for all UK DB schemes is around £441bn, according to the PPF 7800 Index. Coleman warned that BP is making a ‘grab’ for its pension surplus.
He said: “There are three particular respects in which this matters to others. Firstly, it has exposed an unseemly grab for the surplus. The sum of accounting surplus for all the UK DB schemes is £440bn at the moment. That’s an enormous prize for someone.
“Secondly, we’ve seen a shift from the old world to the new world. Pension scheme trustees are coming into new and unique conflicts of interests.
“Thirdly, the pension pensioners are impotent in this process we are going through. We are just sitting there watching this being sorted out behind closed doors. If this can happen with a blue chip, FTSE company like BP on an enormous scale, then why wouldn’t it happen to hundreds of other companies?”
Long term plan needed
This comes as Hymans Robertson has written to the Work and Pensions Committee on future of DB pensions calling for a pensions commission to define a longer term policy strategy.
Leonard Bowman, partner at Hymans Robertson, said: “Now is the time to reflect on longer term policy strategy that would intergenerationally reconnect the UK’s immense store of pensions wealth, so it delivers pension promises, supports current workers and builds societal prosperity. There is a major societal opportunity here, which needs the right policy support and we suggest the establishment of a commission to look at these issues.
“New innovative retirement savings designs are crucial, but the regulatory environment is not yet geared up to offer these. The statutory objectives given to the Pensions Regulator should be re-oriented to balance keeping past benefits secure with offering good quality pensions to current workers. Regulation should encourage, but not mandate, schemes to generate surpluses, because a surplus makes past benefits more secure, generates value for businesses to subsidise workers' pensions, and can empower investment in assets that generate social good.”
