A fairy-tale of pension success…?
Professional Pension headlines the buy-in of pensions owed to staff in DB plans at Baker Hughes. Press and Journal run another story, not about PIC and buy-in but about a disaster for 1,000 staff whose pensions will be slashed.
If you are reading this over your pension, please do not choke on your cornflakes, determine that you will not read a press release about “de-risking” without considering those who take the risk. If ever there was a case of winners and losers, this is it.
Just how much overfunded were Baker Hughes to do this and why did some of that money not get spent to keep DC payments at the agreed level? These questions need to be asked of the trustees, the advisers and most of all the employer. Here is what the press release said
Baker Hughes (UK) Pension Plan chair Sally Minchella (of Law Debenture) said: “Achieving this transaction in expedited timescales is a great result for members and is testament to the highly collaborative approach between the trustees of all three schemes, the company, PIC and the hard work of our advisory teams.”
Brush Group Pension Scheme chair Andrew McKinnon added: “We selected PIC due to their track record and focus on members, combined with their ability to meet our specific requirements. I’d like to thank our advisers for their hard work over many years to get the scheme to this point.”
The Professional Pensions article may give a warm feeling to people bought out (although are giving up any share of surplus), but what of the surplus that could have been spent on staff who didn’t have a right to a defined benefit scheme?
The other side of the story..
Here is where we have to turn to a wonderful piece of journalism from Liza Hamilton which is important for the people of Aberdeen and Peterhead and Montrose. How will they feel to find out Athora Holding Limited has agreed to acquire PIC for £5.7 billion. Where’s all that money come from?
More than 1,000 employees in north-east Scotland face redundancy unless they accept significant pension cuts, according to internal documents and workers speaking anonymously.
Baker Hughes, a major employer in the Aberdeen oil and gas sector, has issued formal advance redundancy notices affecting over 4,500 employees.The company says the redundancies are linked to a proposed change in employees’ terms and conditions of employment, specifically pension contributions.It is proposing to reduce employer pension contributions by up to 25% for nearly 4,600 active members of its UK pension savings plan, according to one worker.This would apply to all current employees, except those who joined after 1 August 2024, who are already enrolled in a lower-contribution scheme.
The changes would come into effect from 1 January 2026.Staff have been informed that if agreement is not reached, Baker Hughes may carry out a process known as “dismiss and re-engage” – commonly called fire-and-rehire – where employees are made redundant and rehired on new, less favourable terms.
“Essentially the business is looking to impose a 25% reduction in pension contributions under an excessive timeline, which currently is legal, but looks to be timed just before the amendment of the employee rights bill that would outlaw this practice,” said a source close to the company.
They asked to remain anonymous due to fear of reprisals, but said,
“too often oil and gas workers of the UK are forgotten about, and need to be vocal”.
Local impact and sites affected
Aberdeen serves as Baker Hughes’ UK headquarters for operations across Europe, the Caspian, and Norway. Key local sites include Montrose, Portlethen, Peterhead, and Dyce.
A Baker Hughes spokesperson said:
“Baker Hughes regularly reviews its global benefit offerings to ensure that we remain an employer of choice, while also maintaining sustainable business practices.
“In the wake of a review that began in 2024, the company recently communicated an upcoming proposed change in pension plans which would align with the current offering to new hires in the UK from 1st August 2024.“These plans would keep Baker Hughes within the top 25% of employers in the UK in terms of pension contributions.
“The HR1 form is statutorily required by the UK government. It was part of a broader communications package to our employees. This communications package provided additional context and background on this proposal.”
Oh good, I wonder if Baker Hughes will be issuing a press release telling us that more than 1,000 employees in north-east Scotland face redundancy unless they accept significant pension cuts. Will
PIC be praised by staff facing a cut in their pension contributions? Is this what their track record and focus on members, combined with their ability to meet Baker Hughes’specific requirements
Will the actuarial standards police run TAS 300 over this deal and ask whether it was fair ?
Will all the advisers involved get well rewarded for getting this deal done before an amendment to the employee rights bill that would outlaw this practice? Is there champagne for completing before the Pension Scheme Bill becomes an Act and creates a culture that puts an end to this kind of thing?
It would be good to know the funding status of the Baker Hughes Scheme before this transaction was concluded – did it for example result in a surplus being freed for return to the sponsor.
It raises some interesting questions for the trustees involved. Another landmark Baker Hughes lawsuit?
An early version of this blog called PIC’s “buy-in” a “buy-out” – my mistake. The question you ask “adventurous” will bet an answer no doubt!
That buy-in rather than buy-out makes a big difference. My question of surplus return is largely redundant. But it does rather the question of whether buy-ins are covered by the FSCS. The response I got in reply to this question is shown below:
“Unfortunately, FSCS can’t provide specific confirmations for individual arrangements. This is because each individual arrangement could have different terms which may mean the same product is/isn’t protected.
Our role, in the circumstance you’ve outlined, would be to work with appointed administrators of a failed firm and provide protection once we are satisfied the arrangement is protected. We would consider all relevant product documentation and agreements after the firm had failed.”
So the best we can say about FSCS coverage of Buy-In policies is maybe.
I wonder how large the discount for that uncertainty was.
Gold plated or risk on for the member?
You do wonder if these Professional Trustees do anything other then rubber stamp company policy, part of the advocacy feeding the insurance industry?
And why of why do the FRC continue to hide Oz-like behind the curtain, and not insist that the required and necessary (LOL) TAS300 analysis of £billion irrevocable transactions affecting thousands of stakeholders (not to mention each being another nail in the coffin over UK growth) are made public as part of any employee and member communications, or at a minimum disclosed in full in company accounts?
A buy-in/buy-out is such a decision of finality with profound financial implications for all stakeholders, yet there is no clear guidance on format or content from the Actuarial Profession (another LOL) on what should be covered under a TAS300 Report – some might think the profession don’t want to do such reports least it leaves an inconvenient trail hampering the rush to sell out, and of course the bounty of fees? You do wonder if the absence of proper TAS300 assessments will aid or hamper the inevitable class actions on this? My guess is the judgement has been made that the absence protects the profession, but imperils the Trustees and the sponsor (as, often overlooked, the TAS300 obligations extend to them too).
If only we had some kind of regulator or something that had an interest in protecting and enhancing member pension benefits within sensible investment parameters, and in a way that doesn’t trash (derisk /disinvest ) our economy, something that be called, say, a Pensions Regulator?
Members (ie pensioners) (and our economy) don’t really stand a chance against the trilogy of PRA TPR and ABI all seemingly enthralled with the doom spiral of derisking.
We once argued TAS 300 standards to a TPR case team should mean that if our scheme actuary had signed off after following such professional standards there was possibly no case to answer on whether trustees had been sufficiently prudent or not.
The TPR case team chose to ignore our argument.
TPR, in my own experience as a professional trustee, preferred “reckless prudence” to be applied.
TPR’s rules of “engagement”
with trustees always seemed to me to be unnecessarily adversarial.
I had, naïvely to begin with, believed engagement should and would be about building relationships, fostering participation and involvement with member-nominated as well as professional trustees, involving two-way communication and shared understanding.
TPR at times seemed to prefer talking to the professional advisers, without the trustees being present or at least represented.
Perhaps that “mindset”, as another comment on another blog suggested, is changing. I do hope so.
Looks like a clear case of where both the employees and the employers have lost out big time from an LDI investment policy targeting obviously unrealistic liability valuation assumptions.
I have been advised (not been able to verify myself yet) that the Baker Hughes pension fund assets fell from $3.147bn to $2.266bn in 2022, as the funding deficit “improved” from $403m to $368m.
If it had not targeted gilts would it not have ended the year reporting a surplus?
Looks like another instance to add to the losses to UK employers from unthinking liability valuation assumptions used by Regulators charged with protecting the PPF over employers and members; compounded by a matching investment policy. This is just another £500M loss to add to those identified in WH Smith and the larger loss suffered by the NatWest Group. What did this do to UK growth prospects?
No wonder as Steve Hodder pointed out yesterday, the Government is desperate to reverse the direction of the super-tanker fleet heading towards buy-in or buy-out.
I ask myself the question would the American owners and the employees of Baker Hughes now be better off the company had continued to offer a DB pension promise.