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Former Shell Executive Paddy Briggs comments on the FT article: Shell UK halts pension fund contributions

03 October 2007

By Paddy Briggs

The Shell Contributory Pension Fund (SCPF) is a well managed fund and those of us who are Shell pensioners are certainly fortunate to be members of it.

But as this FT report confirms…

Financial Times: Shell UK halts pension fund contributions

…virtually all key decisions of the fund, whilst nominally made by the Trustees, are in reality made by Shell top management. The Trustee Board itself is dominated by senior Shell employees and Shell appointees (i.e. Trustees nominated by Shell senior managers). The 30,000 Shell pensioners currently receiving pensions (of which I am one) have only two elected member places on the Trustee Board (out of a total of seventeen Trustees).

It is quite clear that Shell will finesse its management of the SCPF to its own advantage when it can, within the permissible parameters of the Fund. For the last few years Shell pensioners have received annual increase in their pensions at the bare minimum level required by the Fund’s rules – these increases have been directly linked to increases in the Retail Price Index. Through various channels the Shell pensioner community has sought to get higher than RPI linked increases to their pensions for the last few years and persuasive cases have been made to successive Shell in the UK Country Chairmen to attempt to achieve this. The rationale has been first that the Fund allows for larger that RPI increases to be made and that this has happened from time to time in the past – so no precedent would be involved. Secondly that the Fund is very healthy and, therefore, to make an above RPI increase would not put the strength of the fund at risk in any way. And thirdly all the evidence from Age Concern and other authoritative sources is that pensioner inflation far exceeds the average inflation in the UK reflected in the RPI (Council tax bills, for example, have risen at more than three times the rate of increase in average pensioner household incomes during the past decade). These requests to Shell have all been rebuffed.

The explanation as to why Shell has been ungenerous to its Pensioners is obvious from its decision to halt its Employers’ contributions for at least a year as reported in the FT. The £67million that Shell will not have to pay into the SCPF goes directly to the company’s bottom line as a cost saving. Small beer, you might think, for a corporation that is one of the most profitable in the world ($26.3 Billion in 2006). But although the sum is a tiny percentage of the overall income of the company it is quite likely that senior managers in the UK (including the Country Chairman) will have been targeted to achieve cost savings wherever they can. That is the Shell way – break the business down into its smallest manageable component parts and target the managers of these parts to save money. So it has been in the self-interest of these UK mangers to demonstrate their cost consciousness – and the saving of £67m in Pension Fund contributions will have got plenty of ticks on their scorecards. Conversely an alternative of giving some of this money to Pensioners in higher than RPI annual increases (as pensioners requested) would not have ticked any boxes at all!

Paddy Briggs

Paddy worked for Shell for 37 years during the last fifteen of which he was responsible for Brand management in a number of appointments. He was the winner of the “Shell/Economist” writing prize (internal) in 2001. Paddy retired from Shell in 2002 to form the brand consultancy BrandAware ™ and to write and speak on brand and reputation matters.

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