UK - BP, the petroleum company, today revealed its post-retirement and defined benefit plan liabilities rose in value a fraction between December 2008 and June 2009, from £10.43bn (€12.09bn) to £10.52bn, yet the scheme remains in surplus as the fund’s assets under management were £11.555bn at the end of last year.

The BP pension fund will not receive pension contributions from its sponsoring employer again this year as the scheme is still in surplus. However, the sum of assets above which BP can take a contribution holiday has dropped since the decision was made last year, according to analysis of the pension fund’s accounts and those of its sponsor.

The employer has an agreement with BP Trustees that it will not be required to pay contributions except administration charges and regulatory fees as long as the surplus remains above 121%.

BP has enjoyed a contribution holiday since 2007 and its latest funding review at the end of September 2008 found the average funding level on the business days of June, July, August and September was still at 121%, so no additional funding was needed for a year if assets covering liabilities were worth more than 115%.

Interestingly, however, the pension fund did fall further in value by the end of the year and appears have fallen in value again since, as the pension fund’s annual report showed the fund fell £3.243bn from £14.798bn at the end of 2007. And information provided in the minutes of a BP UK pensions consultation forum meeting suggest the surplus was at 105% by 1 July.

And BP warned today in its review of Q2 2009 activity that there is a risk funding requirements could rise should pension funding levels decrease.

Losses in the investment markets contributed to most of the asset fall in 2008, as the annual report also showed the 2008 return was -17.2% and only UK index-linked gilts and cash generated positive gains.

The benchmark return was -19.5% so the pension fund achieved its aim of at least exceeding it by 50 basis points.

UK equities generated a negative return of 30.3% while overseas equity holdings lost 11.6% and overseas bonds fared worse to lose 15.4% in value. Real estate investments also entered negative territory and lost 17.5% in value while UK bonds fell by 70 basis points.

At least 84% of the portfolio was invested in quoted investments by the end of 2008, said authors of the pension fund annual report,

BP announced in June it would close the UK pension fund to new employees, except in the case of its offshore workers at North Sea SPU which would continue to receive DB pension benefits as part of a drive to remain competitive in BP’s business arena. (See earlier IPE story: Fear of DB closures pre-empt tough week for pensions)

In the recent pensions consultation notes, BP said it had no plans to close the defined benefit scheme altogether unless the costs were unsustainable, though this is possible in the near future as just 17% of the DB fund membership are still active employees.

BP will be paying just £2.8m in costs to the pension fund this year it still has a surplus in cost and administration funds of £7.4m from last year - through earlier pre-payment towards benefits and costs - and the total sum required this year is £10.2m.

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