Please read this post and then consider, whether you are a trustee, adviser or funder to a UK pension scheme, how you treat your fish.
The specifics of the BP action group’s campaign are simple. BP has a surplus in its pension scheme, members have a deficit in their “real” pensions , getting far less than the inflation linking they were promised when the scheme could afford it. BP is not paying up on its promise and is saying that its discretionary payments to pensioners are just that.
The small print
Written into the small print of most financial agreements are the protections to those making financial promises, to consider themselves limited in their future obligation . Regulators are keen to ensure that the legal obligations are met but have no power to enforce discretionary payments, that are subject to the small print of trustee rules.
Both sides of the BP Action Group accept that the small print is in place to protect shareholders and employees from unlimited calls from a pension scheme. So we move to a question of “fair value”.
Mike Slingsby of the BP Action Group comments on linked in
BP decided to refuse the BP Pension Trustees request for a discretionary cost of living Pension increase of 9% last year, way below inflation of 13.4%. BP Pensioners do not understand why the Trustees only asked for 9% in the first place and remain stunned by the refusal of BP to approve any cost of living increase above 5%.
John Furniss-Wright’s analysis is that
People don’t realise just how serious this matter is, including many of the pensioners that are or will be affected. Two years of payments below inflation compounds every year, eating into the purchasing power of your pension.
he continues
𝒐𝒗𝒆𝒓 𝒕𝒉𝒆 𝒏𝒆𝒙𝒕 20 𝒚𝒆𝒂𝒓𝒔 𝒂 𝒑𝒆𝒏𝒔𝒊𝒐𝒏𝒆𝒓 𝒐𝒏 𝒕𝒉𝒆 𝒂𝒗𝒆𝒓𝒂𝒈𝒆 𝒑𝒆𝒏𝒔𝒊𝒐𝒏 𝒘𝒊𝒍𝒍 𝒍𝒐𝒔𝒆 ***£59,340.48*** 𝒂𝒏𝒅 𝒕𝒉𝒂𝒕 𝒊𝒔 𝒘𝒊𝒕𝒉𝒐𝒖𝒕 𝒂𝒏𝒚 𝒇𝒖𝒓𝒕𝒉𝒆𝒓 𝒃𝒍𝒐𝒄𝒌𝒆𝒅 𝒊𝒏𝒄𝒓𝒆𝒂𝒔𝒆𝒔.
Taking the RPI average rate over the 244 years since the year 1800, a modest 2.49%, the 20 year loss would be £51,809.67 On the other end of the scale, using the 50 year RPI average rate of 5.78% a pensioner is set to lose £75,300.50 over 20 years
I have read from one respected pension commentator that BP pensioners are “entitled” in the sense that they are “cossetted”. It is true that a BP pension is rather more than most people get but that does not make BP pensioners wealthy or cossetted.
Their issue is whether the money in their pension scheme is used for the long-term benefit of pensioners or the short-term benefit of shareholders and potentially a syndicate of insurers.
The small print isn’t decisive (although I include it at the end of this blog), what is needed is a much larger conversation , based on principals, that conversation has and is being had in financial survives, it is the argument around the consumer duty.
What this says about the consumer duty.
The capacity of an organisation like BP to pay discretionary pensions is greater than most insurers to pay discretionary bonusses or wealth managers to reduce their fees. It is unreasonable that a pension scheme that was set up to recruit , retain and reward staff is exempt from the conversation around consumer duty.
The trustees recommended a discretionary payment be made, cognisant of the capacity of the scheme to pay it, the sponsor said no. The dispute started and it is continuing.
I report on it because the distribution of pension funds is every bit as important as their accumulation. The distribution should be at the discretion of the trustees with the agreement of the pensions regulator and the sponsor should only block such payments where it is clear that they would create material harm to the shareholder and the sponsoring business.
The interest of the member, trustee and sponsor should be aligned and should be governed by the consumer duty which is one of fairness.
Those , like me and the several thousand BP pensioners who consider BP is out of order, should be reaching out to the millions of savers for whom no part of their pension is certain and be looking to improve the lot of all pensioners. That is our general consumer duty.
