Shell waves off last final salary pension scheme

It's the end of an era: the oil giant says it wants to scrap the FTSE 100's last final salary pension scheme.

by Emma Haslett
Last Updated: 06 Jan 2012
Oil giant Shell has announced plans to close down its final salary pension scheme to new recruits in the UK – the last company in the FTSE 100 to do so. Instead of the final salary scheme, which gives workers a guaranteed income all the way through their retirements, the company will offer a defined contribution pension plan – meaning retiring workers’ incomes will vary depending on stock market movement, interest rates and fluctuations in life expectancy. As the Unite union points out, that means new recruits will have a much rawer deal. Then again, as gold-plated pensions go, Shell’s is one of the shiniest outside of the public sector…

What’s strange about this is that, unlike the untimely ends most FTSE 100 final salary pension schemes met with, Shell’s decision hasn’t been driven by the need to save money. In fact, when its pension scheme was last valued at the end of 2010, it had more than enough money to pay all its workers’ benefits on time and in full. In 2007, it was so well-funded that Shell actually applied to (and got permission from) the pensions regulator to allow it to withhold contributions.

In times like these – ie. where most companies’ finances are so badly stretched that they’re struggling to keep up with pension payments at all – that situation is admittedly unusual. So it’s fairly predictable that Unite isn’t happy in the slightest, calling the decision a ‘disgraceful act, nothing less than greed on the part of one of the world’s richest and most powerful corporations. They have no need whatsoever to close this scheme.’

But the times, they are a-changin’ – and with the average UK worker now living to 80, many firms are having to rethink their pension schemes. That’s partially, of course, because businesses (including Shell) are anticipating the future, when we’ll live for even longer. And it’s partially because, with economic pressures coming from all sides, companies are having to claw back as much as they can.

And to be fair to Shell, it will still offer benefits many of its contemporaries can’t: while other firms have scrapped their schemes altogether (which led to industrial action at Unilever in December), only those recruited after 2013 will miss out on final salary benefits. In fact, given the wrangles their public sector colleagues are having with the Government, it would be churlish for Shell staff to complain too much...

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