“Easing controls on surplus extraction should only be considered alongside new measures that protect pension fund members”.
The BP Pensioner Group (BPPG) has called for more measures to protect 9 million members of UK Defined Benefit (DB) pension funds, replying to the Government’s consultation on making it easier for employers to extract surplus cash from the funds. More than 5,000 UK DB funds currently report a total £359 billion surplus of assets over liabilities.
In the case of BP, the company has laid claim to 100% of a £5 billion surplus in a UK pension fund – set up to look after 58,000 UK pensioners. The company has recently blocked the Trustee of the Fund from using some of the surplus to provide ‘cost of living’ pension increases in line with a long-established pension policy. This has resulted in the average pension of £17,000 falling in value by 11% in just two years. BP has responded to thousands of complaints by inviting pensioners to apply to a charity fund for one-off assistance.
Responding to the Department of Work & Pensions consultation ‘Options for Defined Benefit schemes’, the BPPG has warned that easing controls on surplus extraction should only be considered alongside measures that protect pension fund members. These include:
- 50% of pension fund trustees to be nominated by members, with an independent professional trustee chairperson holding a casting vote;
- 66% majority of a membership vote required to approve any proposal for surplus extraction;
- employers to have in place insurance to compensate the Fund if employer surplus extraction leads to later pension fund shortfalls; and
- proposed 25% reduced rate of tax on extraction of any surplus funds to be contingent on first making good eroded benefits.
Mike Slingsby, a former senior BP manager and spokesman for the BPPG said: “We are encouraged by the recent statements of the Pensions Minister, Paul Maynard, when he says: ‘the security of member benefits should be paramount in any major reform of the pensions landscape’ and ‘the primary purpose of a defined benefit pension is to pay the promised benefits in full“
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“However, we urge the government to recognise that the pensions landscape has changed completely for pension fund members. The old compact between employer and pension fund member has gone. Having closed their DB pension funds to new entrants, many sponsor companies like BP now view them very differently – either as liabilities on their balance sheets or as assets with surpluses that might be captured for the benefit of shareholders and executive reward.”
“This is increasingly putting fund trustees under stress. Their fiduciary duty to act in the best interests of the members is now in conflict with the actions and aims of their sponsor company. This all requires a new and very different approach to the legislative and regulatory regime for the UK’s defined benefit pension schemes in maturity. Our response to
the consultation seeks to inform that new approach.”
Notes to Editors
- Department of Work & Pensions consultation (April 2024) ‘Options for Defined Benefit schemes’. https://www.gov.uk/government/consultations/options-for-defined-benefit-schemes/options-for-defined-benefit-schemes
- The BP Pensioner Group represents some 2,900 members of the BP Defined Benefit Pension Fund. The Fund has c. 58,000 members of whom 14,000 are over the age of 80. The average annual pension paid is c. £16,700 pa.
- For some 30 years, BP and the Trustees have given written and verbal assurances that their policy is to “increase pensions fully in line with cost-of-living increases wherever possible and provided the Fund has sufficient resources.” During that period, whenever inflation (RPI) has increased above 5%, discretionary increases were awarded fully in line with inflation.
- Thousands of BP employees invested their own money into the Fund with that assurance. The Fund has a very strong surplus of £5.1 billion.
- In 2022 and 2023, BP acted to block the recommendations of the Trustee to award discretionary increases leading to an 11% fall in the real value of the pension.
- The BP Pension Fund trustee has admitted that it is in talks with insurance companies inviting them to ‘buy-in’ to the Fund. Buy-In arrangements are invariably the first step leading to a complete sell off of pension funds to insurance companies.
- BP has claimed that 100% of the surplus, well over actuarial forecasts, is needed to assure member benefits to 2080, but has also booked the £5.1 billion pension fund surplus as a Company asset on its books.