Select Committee told BP repeatedly vetoed Trustee recommendations to use record fund surplus to partially restore pensions eroded by inflation.
In evidence to the Work & Pensions Select Committee the BP Pensioner Group (BPPG) – representing more than 3,000 members of the BP UK Pension Fund – warned how an employer veto and Trustee board conflicts of interest risk securing the Government’s policy aims. These aims include facilitating the release of pension fund surpluses to both drive investment in the UK economy and to benefit the more than 9 million UK members of defined benefit schemes – many of whom have seen pensions eroded by inflation.
In written evidence, the BPPG described how the Bill provides inadequate protection against recalcitrant employers who may simply use a veto power to completely block or minimise surplus sharing and frustrate the Government’s good intentions. In its Bill Impact Assessment, the Government assumed a 50:50 sharing of surplus between employer and pensioner but absent some specific direction or controls in the Bill and regulations, it is believed this would prove no more than an unrealistic aspiration.
Despite a longstanding policy to protect pensions from erosion by inflation if the BP Pension Fund had “sufficient resources”, BP has repeatedly vetoed Trustee recommendations for discretionary increases thereby inflicting a permanent 11% fall in the value of pensions paid to tens of thousands of BP’s UK pensioners. The Fund has a record surplus.
In oral testimony, Jonathan Popper, a retired BP senior manager speaking on behalf of the BPPG, told MPs:
“It comes down to giving all Trustees the powers to deal with companies and to be genuinely independent. For four years running, BP has rejected affordable discretionary increases despite a record £4 billion pension fund surplus. BP’s track record suggests the Company is determined to resist sharing surplus with its pensioners. We believe that the provisions of the Pension Schemes Bill must be strengthened so that employers can’t hang on to the surplus and that pensioners get a fair share.”
The problem is not confined to BP pensioners. The recent high level of inflation experienced in the UK between 2021-2024 saw prices rise by 24.1% (CPI) – well above the legislative mandatory increase figure of 2.5% p.a or 10% across the 4 year period. The UK’s Defined Benefit pension funds hold an estimated total surplus of £222 billion with 75% of UK DB pension funds in surplus in 2024. Yet millions of fund members are experiencing significant erosion in the value of their pensions with 88% of UK Funds failing to use surpluses to at least partially restore pensions significantly eroded by inflation in recent years.
The BPPG has proposed a number of measures to strengthen the Bill which include:
- Regulations obliging Trustees undertaking surplus release to give particular weight to pensions eroded by inflation.
- Retaining an existing statutory requirement in the 2004 Pensions Act that in making payment of surplus to employers the trustees are satisfied that it is in the interests of the members.
- Strengthening the composition of Trustee boards to address potential conflicts of interest and to provide genuine challenge to employers in surplus extraction negotiations including a requirement that member nominated trustees comprise 50% of Trustee Boards and the Chair be an independent professional trustee.
- Securing a real voice for millions of pensioners by requiring proper communication and consultation prior to major changes to a Fund including Buy-In, Buy-Out and surplus extraction.
Notes to Editors
- The BP Pensioner Group was formed in May 2023 and has grown to more than 3,000 members.
- The BP Fund has a £3.8 billion surplus of assets over liabilities and a £2.8 billion surplus remaining should a ‘Buy-Out’ with an insurance company be completed. .
- BP vetoed the Trustee recommendations (which were endorsed by the Fund’s independent actuary) to make discretionary increases to the pension in 2022, 2023, 2024 and 2025 to partially offset the impact of inflation. As a consequence the purchasing power of the pension has fallen by more than 11%.
- The average BP pension is c. £18,000 per year. Of the c. 57,000 members of the pension fund, 15,000 are over the age of 80. The average pension has declined by £2,000 pa for each and every year of that person’s remaining life due to BP blocking discretionary increases.
- At the same time as rejecting the Trustee recommendations, BP enjoyed record windfall profits arising from soaring oil and gas prices which were a primary source of UK pensioner inflation. BP’s then CEO described the company as a “cash machine”.