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Daily Telegraph: Shell gives itself pension holiday

By Russell Hotten, Industry Editor
Last Updated: 12:19am BST 02/10/2007

Oil company Royal Dutch Shell has halted payments into its £12bn UK pension fund after latest valuations showed the scheme to be heavily in surplus.

The surprise move, the first pension holiday taken by the Anglo-Dutch company since 2002, will be reviewed next year.

Shell’s decision reflects the generally improving health of defined benefit schemes, but experts said the company’s move was unlikely to be followed by other large firms. Contribution holidays were widespread until the stock market falls early this decade hit investments and plunged many schemes into deficit.

The 46,000 members of Shell’s UK scheme – which include 29,000 ex-employees receiving pensions – were told in a report from the trustees that the company suspended contributions from July 1. The trustees also said that a large amount of investments had been switched from equities into bonds in the second quarter of this year, ahead of the recent turmoil in the markets. The weighting in equities has been cut from 74pc to 50pc, with most of the money going into bonds, which had previously accounted for about 13pc of the scheme.

Shell, which contributed £67m to the fund last year, would not disclose the scheme’s surplus, although it is thought to be about £2.9bn. The company’s Dutch and US pension funds are unaffected.

A Shell statement yesterday said: ” The Shell UK pension fund has agreed to a reduction in contributions to zero. This will be kept under review. The fund remains in a very strong position and is heavily in surplus.”

A report from Aon Consulting estimates that the largest 200 UK company pension funds showed a total surplus of £5bn at the end of September, against a deficit of £10bn at the end of August.

Changes to pensions regulations have made it harder to take contribution holidays unless schemes are showing a healthy surplus.

However, John Ralfe, a pensions consultant, said that trustees were unilaterally taking a “tougher line” following the furore in recent years over deficits and the collapse of some company schemes. He said that it was clear that Shell’s scheme was one of the healthiest in the UK, but he would like to know more details about the funding “comfort zone” and the company’s longevity assumptions about how long employees might live on average.

“There’s an argument that, if a company has a significant surplus, it should get an insurance company to buy out the liabilities. That is, buy an annuity and lock in the money,” he said.

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/10/02/cnshell102.xml

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