UK - The British oil giant BP is following in the footsteps of Anglo-Dutch oil firm Shell and taking a contribution holiday from its pension scheme.

In an announcement to its members today, the scheme said it company will cease contributions to its £14.7bn (€19.8bn) UK pension fund during the whole of 2008.

The decision was taken following the a valuation last October, when the scheme's funding level was said to be 135% and its liabilities were at £10.8bn.

In today's announcement, BP said: "Under the terms of the Statement of Funding and Investment Principles (SFIP), the company is not required to contribute to the fund if the funding level goes over 115% at the Annual Assessment Date (end of September)."

BP added it, alongside the trustees, the scheme actuary, will monitor the funding level on a monthly basis: "If it has fallen below 115%, when the scheme actuary certifies the funding level in his next annual assessment, then the company will resume contributions in 2009."

The company has made payments to meet the costs of administration and the Pension Protection Fund (PPF) levy.

A spokesman for the company told IPE today it is the first pension holiday since the SFIP was put into place.

The Fund's next full three-year valuation will be carried out at 31 December 2008. Following this, the SFIP will be reviewed.

At the beginning of October last year, Shell's UK pension trustees already agreed to stop taking company contributions as the £12m pension plan was then 132% funded.

According to Paul McGlone, principal and actuary at Aon Consulting, a contribution holiday might be perceived as controversial, though "a rational case" is to be made for considering this strategy, he said.

"Historically it has been seen as a key factor that contributed to the issue of pension scheme deficits, although in truth we know it was actually a combination of this and many other factors," said McGlone. 

According to McGlone, a number of smaller companies have already decided to take a contribution holiday from their scheme as schemes are being funded more prudently.

"There is, after all, little benefit in continuing to put additional cash into a scheme that is well-funded as once cash is in the scheme it can become trapped," he concluded.

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