BP Board Preparing to Offload UK Pension Fund (21/06/2023)

Company accused of short-changing pensioners to “fatten goose for market”.

BP is understood to be discussing plans to ‘hive-off’ the £20 billion UK Pension Fund which was first established in 1928. The Fund, with 60,000 UK members, pays out an average £19,000 per year to pensioners and is now closed to new members.

More than 9 million UK pensioners rely on Defined Benefit schemes for their retirement and they hold a total of £1.4 trillion in assets to pay pensions. Many of these schemes are approaching maturity, and some companies, including BP, are weighing up options to exit – while at the same time capturing any surplus that the Fund has built up.

BP’s UK Pension Fund has a £6 billion surplus. But last month, the Company blocked the recommendation of the Fund’s independent trustees to provide a discretionary pension increase from 5% to 9%. The Trustees had sought to offset the impact of inflation on pensioner incomes which have fallen by 11% in real terms in two years. In the past BP has always supported the Fund Trustees in keeping pensions aligned with inflation.

BP said “the decision was based on the need to balance the interests of our many stakeholders, including customers, employees, retired members of staff and shareholders, across the world. Importantly, many of bp’s retirees are outside the UK and most are not in inflation-linked final salary pension schemes.”

But Nick Coleman, a former BP senior manager and a member of the BP Pension Fund said: “Clearly this reasoning is nonsense. The BP Pension Fund is ring-fenced and independent from BP. It is UK-based and subject to UK law – its assets cannot be deployed to support benefit packages in other countries. Comparing ring-fenced pensions with current employees’ pay, bonus and numerous other benefits [Note 7] in different countries is virtually impossible – let alone comparing all these with shareholders’ dividends and share buy- backs. Such talk of ‘balance’ is just not credible.

“And the Pension Fund is a Trust, protected by Trust and Pension Law. Its assets were built up in large part from employees’ payments-in-lieu of wages as well as Additional Voluntary Contributions. In short – these assets are there to meet the retirement needs of 60,000 people who work or worked for BP over many decades.”

“The Fund has a very strong surplus which could and should be used for the purpose it was intended – to ensure the value of the pension is not eroded permanently by inflation.

“BP’s argument runs counter to the purpose of the Pension Fund Trust and, we are forced to conclude, is a smokescreen for what is really happening. We understand that BP is discussing plans on how to dispose of the Fund. And by blocking the Trustees recommendation, BP gives the impression of “fattening the goose” so it can take it to market to obtain the best price, offload BP’s responsibility to stand behind the Fund and the members, and capture some of the surplus £6 billion funds for itself.

“In the past, even when BP faced financial difficulties, the leadership of the company has supported the Trustees in awarding discretionary increases to match inflation higher than 5%. Today BP says it is a “cash machine” enjoying record profits. And the Company has only recently approved a wide range of different pay and cost of living allowances to staff in the UK and globally while its Chief Executive received a 477% increase in remuneration over the past two years including £404,000 in cash allowance in lieu of pension.” (Source: BP plc Annual Report 2022)

A 1,100-strong BP Pensioner group has called upon BP to confirm its intentions for the Fund, make good the 11% loss in the real value of pensions and openly and widely consult with the Fund membership as well as the Trustees before any significant changes to the Fund are made. BP has refused to deny that it intends to sell/transfer the Fund to the insurance industry.

The group has also submitted written evidence to the current Work & Pensions Select Committee Inquiry into Defined Benefit pensions chaired by Sir Stephen Timms.

Notes to Editors

1. The BP Pension Fund was established in 1928 and its 60,000 members comprise 33,000 pensioners, 10,000 dependents and 17,000 deferred pensioners. Of these, some 16,000 are aged in their 80s and 90s
2. The Fund was closed to new entrants in 2010 and closed to all future accrual for existing members in 2021
3. The average UK BP Defined Benefit pension paid is approximately £19,000 per annum. For a 60-year-old on average pension, the 11% cut in the value of the pension represents the loss of approximately £60,000 in pension payments in retirement years.
4. BP Pension Fund rules state the Trustees must each year increase the pension in line with inflation up to 5% and they may award increases by larger amounts as they consider to be appropriate and with the consent of BP. When inflation last exceeded 5% in the 1990s, BP gave its consent to the Trustees to make awards tracking inflation above 5%. BP has never stopped the Fund matching inflation – until now.
5. BP reported record profits of £22 billion in 2022. The CEO’s annual remuneration increased to £10 million pa. The company paid out dividends and used surplus cash to buy back some £9 billion of BP’s shares which contributed to a 50.1% increase in the total returns to shareholders.
6. In 2022, BP remunerated its employees in the UK and globally by awarding a very wide range of differing pay – as much as 9% in some countries – plus bonuses, share awards, personal well-being benefits, and a one-off cost-of-living allowance that ranged from 4- 8% of basic pay between different employees globally.
7. BP’s Annual Report 2022 notes: “We operate different pension plans by location and for those parts of our business where market practice is markedly different…We have set salary budgets that are reflective of the market environment in each country. In many cases these are higher than last year – reflecting the impact inflation is having on wages…We operate different bonus plans for those distinct parts of our business where market practice is markedly different, such as our trading business.”