A group of BP pensioners has termed “unacceptable” that the trustees of the BP Pension Fund did not inform members of their buy-in considerations. Scheme members said earlier they believed this was the case but only had confirmation from press reports on Friday.  

 

The group previously said that BP was looking to offload the scheme to an insurance company, but neither the company nor the trustees confirmed this at the time. In its evidence to the Work and Pensions Committee’s inquiry into defined benefit pension schemes, published last month, the pensioners wrote that the oil and gas firm was considering a pensions risk transfer, criticising that there had been no consultation with members. 

 

Five people close to the discussions have since confirmed the scheme is in talks with several insurers, according to a Financial Times report from Friday. 

 

In response to the trustees owning up to their risk transfer plans, the 1,300-strong pensioner group said: “The trustees’ primary duty is to its members’ interests – and the failure to inform members of plans of such a radical step is completely unacceptable.” 

 

The pensioners are calling on the trustees to start consulting with the membership. 

A spokesperson for the BP pension trustees said: “As trustee, we have a duty to continually review and assess all investment options to manage the security of the fund and members’ benefits. Such options include long-term insurance policies. These are widely used for addressing investment and longevity risk, helping to manage the security of DB schemes and members’ benefits."

The spokesperson added: "Investing in such a policy would not amount to selling the fund, which would continue to operate as normal under the oversight of its independent trustee board. We would communicate with members in connection with any decision around such options, as appropriate and bearing in mind our duties.” 
 

Meanwhile, the pensioners are also instructing a KC to provide an opinion on various aspects of the handling of the situation by the trustees and by BP, including the legality of BP blocking a discretionary pensions increase for its final salary scheme members while running a large surplus. The decision not to inflation-proof pensions for the first time despite a trustee recommendation has led to what the pensioners claim is an 11% cut in real income over the past two years and is where relations began to fray. 

 

     

The issue of surplus distribution is salient because the pensioners fear the plan, closed to accrual in 2021, could wind up soon. According to the latest annual report of BP, which booked a record £22bn profit last year, “the company is entitled to a refund of any remaining assets once all members have left the plan”. 

 

The pensioners believe they are entitled to benefit enhancements before any surplus is returned to the scheme sponsor, and are arguing that member interests must be given greater weight in risk transfer situations in its evidence to MPs. 

 

“We urge the committee to conclude that more rights and protections are afforded to defined benefit scheme members – particularly governing the process of transfer/sale to the insurance industry,” the pensioner group wrote. 

 

It added that scheme members “have no opportunity to influence the outcome of commercial negotiations for a buyout/transfer and are therefore likely to suffer suboptimum future benefits”. 

 

From a legal perspective, the demand for more say over risk transfers might be difficult. David Griffiths, partner at law firm Squire Patton Boggs, believes that giving scheme members more influence about the decision to transfer to an insurer has little chance as “it wouldn’t just have to overturn legislation but the basis of trust law and trust”, with the fund legally owned by the trustees. 

 

But he admits that exchanging a live trust, with the ability to pay uplifts or change benefits, for the security, yet lack of flexibility, of an insurance solution constitutes a trade-off – one that the members of an overfunded scheme with a strong employer could well see as unfavourable for themselves. 

What do you think of how BP and its trustees have handled the discretionary increase and the risk transfer comms?