Merryn's Blog

Why your pension problem will soon be accounting history (and why that’s good)

Give it 20-30 years and the whole defined-benefit pension saga will be nothing but super-dull accounting history, says Merryn Somerset Webb.

160711-shell-ceo-b

I am mildy obsessed with pension deficits at the moment. I am quite sure that the problem is bad, but not as bad as the industry insists on thinking that it is. I am also sure that the result of the "awfulising" of the deficit problem is doing horrible things to the economy.

We would be better off focusing on supporting companies so that they are healthy enough to pay their pensions as they go, rather than insisting that all pension funds are fully funded all the time. The future is an uncertain place, where we will need healthy companies more than healthy pension funds.

Subscribe to MoneyWeek

Become a smarter, better informed investor with MoneyWeek.

So some good news. A few weeks ago AJ Bell came up with some numbers on deficits in our very big companies that made for miserable reading. I quoted them. But I then got an email from Shell asking me to look more closely at their pension arrangements. Their company report suggests a deficit of over £8bn. Real money.

But do as Shell ask (look closer) and you will see that Shell's UK defined benefit fund itselfis in surplus. The £8.5bn is the number for the global' deficit, and is accounted for by two main factors: healthcare costs for US fund members and the fact that "tax rules in some places mean that it is better for some pension commitments to be underfunded".

Advertisement
Advertisement - Article continues below

The UK fund the details of which you can find here is in fact in mild surplus (104%) rather than deficit. It is also fairly sensibly invested (a balance between equities and bonds as opposed to the usual huge overweight in bonds) and its report for members makes it refreshingly clear that any discussion about surpluses or deficits is only technical' and actuarial' given that there is no intention to wind the fund up.

So there is £8.5bn worth of pension deficit' you don't have to worry about at all.

Finally, a point from the Shell report that is worth noting for the simple reason that it reminds us that the defined-benefits panic you see around you is a medium-term problem at worst.

The Shell UK scheme has just over 42,000 members in total. 9,000 of those are deferred' (so not working at Shell any more, but still in line for benefits on retirement) and 4,500 are active' (working at Shell and in line for a DB pension). But all the rest (some 29,000) are already retired and getting payouts. Give it 20-30 years and the whole defined-benefit pension saga will be nothing but super dull seeming accounting history.

Advertisement

Recommended

Visit/519858/how-long-can-the-good-times-roll
Economy

How long can the good times roll?

Despite all the doom and gloom that has dominated our headlines for most of 2019, Britain and most of the rest of the developing world is currently en…
19 Dec 2019
Visit/516758/beyond-the-brexit-talk-the-british-economy-isnt-doing-too-badly
Economy

Beyond the Brexit talk, the British economy isn’t doing too badly

The political Brexit pantomime aside, Britain is in pretty good shape. With near-record employment, strong wage growth and modest inflation, there is …
17 Oct 2019
Visit/513684/companies-cut-back-on-their-pensions-bills
Personal finance

Companies cut back on their pensions bills

Britvic is the latest firm hoping a cheaper inflation index will cut pension costs. David Prosser reports.
28 Aug 2019
Visit/509683/good-news-for-savers
Pensions

Good news for pensions savers from HMRC

HMRC has withdrawn its appeal over breaches of the pensions lifetime allowance.
28 Jun 2019

Most Popular

Visit/investments/commodities/gold/600686/gold-and-silver-bull-market-2020
Gold

Want to make money in 2020? Gold and silver are looking like a good bet

If you want to make money from investing, says Dominic Frisby, it’s simple: find a bull market and go long. And in 2020 gold and silver are in a bull …
22 Jan 2020
Visit/investments/stocks-and-shares/share-tips/600672/share-tips-of-the-week
Share tips

Share tips of the week

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
24 Jan 2020
Visit/economy/global-economy/600711/the-charts-that-matter-coronavirus-or-a-liquidity-air-pocket
Global Economy

The charts that matter: coronavirus – or a liquidity air pocket?

With the yield curve showing worrying signs of flatlining again. John Stepek wonders what's to blame and turns to the charts that matter most to the g…
25 Jan 2020
Visit/investments/investment-strategy/600709/the-coronavirus-is-scary-but-its-irrelevant-to-your
Investment strategy

The coronavirus is scary – but it's irrelevant to your investments

The spread of the coronavirus is causing alarm around the world. And, while it could be a serious short-term threat to human health, it’s not somethin…
24 Jan 2020