UK/US – Oil giant BP announced today that it would be injecting around two billion dollars into its US and UK funded pension schemes.
BP has two funded pension schemes, which combined have a total deficit of around 2.2 billion dollars. The UK scheme, which is four times the size of the US scheme, comprises only around 200 million dollars of the total deficit, however.
Already this year, 300 million dollars was injected into the US scheme in the first quarter, and 230 million dollars in July. A spokesman for BP said the remaining deficit would be plugged in the second half of the year depending on levels of surplus cash and market performance.
Companies with US occupational pension schemes are increasingly ensuring that deficits are kept to a minimum to avoid the high premiums charged by the Pension Benefit Guarantee Corp. Schemes pay a flat-rate yearly premium per individual covered to the PBGC as a type of insurance in the event of companies going to the wall and employees losing their pensions.
Added to this, an extra variable rate is paid per $1,000 unfunded vested benefits, and to avoid paying these premiums there has been an incentive for US companies to increase pensions contributions. Carmaker GM, for example, which has the US’s largest corporate pension scheme, had to contribute 4.8 billion dollars last year to avoid the PBGC premiums.
The spokesman for BP, however, said he was unaware whether the company was injecting the two billion dollars to avoid paying the premiums. To his knowledge, the decision was made as it was “the right thing to do.”
Aero-engine maker Rolls-Royce is also tackling the issue of pension deficits. According to newspaper reports today Roll-Royce has asked its staff to delay retirement by five years and accept a reduction in benefits as part of plan to plug a 1.2 billion pound pension-fund deficit.
Proposals from Rolls-Royce include an increase in retirement age from 60 to 65, a reduction in the top-up to pension funds provided in the case of early retirement, and a change in the treatment of additional voluntary contributions.