Shell’s failure to keep its pension promise

Shell’s failure to keep its pension promise

Extensive comment by Paddy Briggs on the posting on a website “Shell’s failure to keep its pension promise appears in the public domain Paddy Briggs”

(EXTRACT FROM THE POSTING: “Shell Shocker. Even with gas gushing like never before at the oil majors, Britain’s largest, Shell, is reluctant to share the spoils with those who have made its profits over the years.”

COMMENT BY Paddy Briggs

The senior management of Shell is used to dealing with criticism – enormous profits, high levels of remuneration for top executives and continuing criticism of their environmental record and plans come with the job. But this story on UK Pensions policy in “Private Eye” on 17^th March must have come as an unwelcome surprise.

As a Shell Pensioner and former Trustee of the UK Fund I can confirm that the “Eye” story is substantially true. The “Shell Contributory Pension Fund” (SCPF) is the largest of the two Funds referred to and at a valuation in excess of £17.6bn and a funding level of 117% it is one of the UK’s largest and most secure. The Fund, which is closed to new members, has some 36,750 members of whom less than 3,000 are active. Members in receipt of a pension number just under 27,000 and the total pensions paid in the last reported year was some £500 million. This means that the average Shell pension is around £18,700.

The Trust Deed of the SCPF provides for “Cost of Living” increases determined by the change in the Retail Price Index (RPI) in the December prior the new Pension year but with a 7% “cap”. In the event that the RPI increase is greater than 7% then the Company (the “Sponsor” of the Fund) can at its discretion apply an increase in excess of 7%. Since 1985 the December RPI only exceeded 7% twice – in 1989 when it was 7.7% and in 1990 when it was 9.3%. On both occasions the company matched the RPI increase. This met the Company’s frequently repeated promise to pensioners that “The SCPF provides a high degree of protection to pensions against inflation, so that the real value of your pension is maintained” was honoured.

In 2021 the RPI increase was 7.7% and in 2022 it was 13.4% – on both occasions rather than following the precedent created in 1989 and 1990 the Company chose to apply the 7% cap. In respect of the 2023 Pension adjustment this means that the average Shell Pensioner will receive an annual increment of £1309 rather than the £2506 they would have received if the pension had matched the 13.4% inflation rate. In real terms the average pensioner will be £1197 worse off. The “value” of his or her pension has certainly nor been “maintained”, and by a wide margin.

When it became clear that the Company was applying the 7% cap it issued a statement to pensioners which attempted to justify its  actions as follows:

1. Shell stated “…whilst the Trust Deed and Regulation of the Fund provide increases up to the relevant caps based on RPI, the Office for National Statistics does not believe RPI is a good measure of inflation. The Office for National Statistics preferred measure for inflation is the Consumer Prices Index… which was 9.2% in December 2022”. This was a rather extraordinary even disingenuous thing to say. The fact is that the reference for the SCPF is, and always has been the Retail Price Index. Debates about the appropriateness of any price index for sections of the community have always been complex even contentious and it is surprising to see the SCPF’s sponsor jumping into this maelstrom!
2. Shell said that “Provision of pension increases [above the cap] would significantly increase the Fund’s liabilities and over time erode the surplus… a [pension] increase of 13.4% would increase the Fund’s liabilities by more than £500m…” Well, everyone in the DB pensions world knows that Liability calculations vary enormously over time depending on actuarial assumptions about (for example) longevity and bond yields. For example, the SCPF liabilities fell by £171m between December 2020 and December 2021 simply because the longevity assumption was changed! The Company’s £500m statement is equally speculative. More relevant would be to point out that the difference between 7% and 13.4% would cost the Fund only £32m in the first year – a miniscule 0.18% of the Funds £17.6bn Assets (these rose by £535m between 2020 and 2021, again dwarfing the “cost” of an inflation matching pension increases).
3. Shell says that they “…need to take into account all stakeholders [including] …salary increases granted to current employees and distributions to shareholders”. This is a quite extraordinary and spurious statement ignoring the fact that remuneration and dividends are paid out of Company funds whereas Pensions are paid out of the Pension Fund! The increase in Pensions, whatever it may be, is no charge on the company (sponsor) at all!

One wonders what role the Trustees of the SCPF have played in this saga. The paradox is that they are entrusted with ultimate responsibility for managing a £17.6bn DB Fund (by law) but that, in theory, they do not even have to be in the loop for Pensions annual increment decision-making which is entirely a company matter.

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Paddy Briggs worked for Shell between 1964 and 2002. He was an elected Member Nominated Trustee and Director of the Shell Contributory Pension Fund between 2010 and 2014. He has donated his fee for this article to the “Shell Pensioners Benevolent Association”.

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