On 30 November 2023, BP posted a ‘standard’ response statement ‘An Update on UK pension concerns’ on its company website regarding its dispute involving thousands of its UK pensioners. The BP Pensioner Group rebuts a number of the claims and assertions made.
bp Helios Fund
BP has said it will offer a one-off, means-tested payment of £2,500 to BP’s qualifying UK pensioners who provide supporting paperwork.
- The £2,500 is only available to pensioners with a household income no greater then £30,000. This will limit the number of claimants to a small number. Few married couples with full state pensions are likely to qualify.
- bp talks about the Fund having provided longstanding support to those in need. In fact, the amount provided in recent years has been extremely small, not only in absolute terms but compared to other similar schemes such as the one run by Shell. In 2022 the Fund provided 31 loans and grants (11 in 2021) totalling £117,000 (£27,000 in 2021)
- The payment is a once off payment. Given that prices levels are not going to fall back to 2021 levels, this assistance is going to be needed year after year.
- If bp was genuinely concerned about the impact of inflation on poor pensioners, why did it take 18 months to do anything? Should it not have acted within months of the giant energy and food price increases that occurred following events in Ukraine in February 2022?
BP Pension Fund
BP claims its UK pensions are only guaranteed to increase annually up to a maximum increase of 5% each year and that the policy of increasing pensions in line with the cost of living is “historic” and therefore no longer applies.
- 5% is not a “maximum” total increase. It is the maximum of the guaranteed component with a further discretionary component.
- From 1992 to 2021 RPI inflation didn’t exceed 5%, so there was no need to consider discretionary increases above 5%. This doesn’t invalidate the historic policy as bp asserts. It’s like they’re saying, don’t bother with a fire extinguisher in a refinery because there hasn’t been a fire for 30 years.
- bp actually approved discretionary increases in 1995, 1999, 2001 and 2002, during years of below 5% inflation. The 2007 alleged cessation of discretionary increase, only related to periods with sub 5% inflation, rather than a general curtailment, as a proper reading of the full document reveals. (To see the BP Pension Fund’s 2007 document on discretionary increases click here https://bppensionergroup.org/policies )
- The 2007 communication, which bp believes somehow terminated the policy of increasing pensions in line with the cost of living, actually says “The Trust Deed includes a power to make discretionary increases. This is in order to provide some flexibility when circumstances are exceptional, such as price inflation being above the 5% ceiling”. By the document’s own definition the RPI increases in 2022 and 2023 of 7.5% and 13.4% respectively were “exceptional” and therefore discretionary increases could be expected according to this 2007 document.
Balancing the Interests of Other Retirees and Employees
bp says agreeing to a discretionary increase for UK Pension Fund members would not be appropriate for a global company with pensioners elsewhere and not fair to its UK employees .
- bp appears to be saying that it can break policy promises to its pensioners in the UK because there exist pension schemes in other parts of the world where there are no discretionary increases or where funding might be insufficient. It’s like saying you shouldn’t go to work in a company car, because some people have to travel on public transport.
- bp has different salary levels in almost every country it operates in. We’ve never heard it say that it can’t pay what’s needed in one country because salaries in another place are different. So why single out pensions for this special privilege?
- For some reason, bp seems to believe that pensions should rise no faster than salaries, despite high inflation. It’s unfortunate if bp salaries in UK haven’t kept up with inflation, but that doesn’t justify holding back pensions. UK employees are free to leave bp and look elsewhere if they don’t like their salaries; pensioners are not. And in any case, bp employees tend to rise up through the salary scale over time. This opportunity doesn’t exist for pensioners.
Balancing the Interests of Other Stakeholders
BP claims allowing the Pension Fund Trustees to increase UK pensions to partially reflect the cost of living would have had a significant financial impact on BP and reduced the future protection of pensioners benefits.
- The £400m P&L cost of the 4% discretionary increase arises from a requirement to comply with statutory accounting standards, but there would have been no need for new additional cash to be paid into the Fund given its robust financial health. There would have been zero impact on bp’s freedom to invest, pay dividends, buy back shares or repay finance debt.
- Now BP has closed the Fund to new members and accruals, the Pension Fund Trustee has successfully adopted an investment policy that matches Fund asset investment to Fund liabilities significantly lowering the risk exposure of the Fund members and BP stakeholders to future volatility.
- The £400m (bp’s number) cost of the 4% discretionary increase compares with bp’s $67bn EBITDA in 2022 and $33bn in the first 9 months of 2023.
- The Fund’s surplus stood at £5bn at the end of 2022. The relevant factor which bp hasn’t mentioned is the Funding Ratio; assets as a % of future pension obligations. This stood at a record 132% at the end of 2022, based on prudent assumptions made by the independent actuary. The award of the 4% discretionary increase would have reduced the surplus by £400m (on bp’s figures) and the funding ratio to 129%.
- The £4bn paid into the fund by bp over the period since 2010 was paid because of bp’s contractual commitment to its employees and pensioners, many of whom accepted lower salaries with bp than they could have earned elsewhere because of the existence of a non-contributory pension scheme.
- The £4bn consisted of two items; an amount paid in lieu of salary to cover normal employer contributions, and an amount paid to cover the deficit which arose in that period. Over £3bn of this was paid in a normal contribution instead of salary, which was effectively deferred salary. A smaller amount (£900m) covered deficit payments.
- Although bp conveniently mentions the amount is paid into the Fund after 2010, it seems to have forgotten to mention that in the previous two decades the Fund was financially robust and for nearly all of the period 1990 to 2010, bp was able to take prolonged pension holidays, paying nothing into the Fund. This shouldn’t be forgotten or confused.