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.

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Shell CEO Ben Van Beurden: global deficit of £8bn, but UK fund is in surplus

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.

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.

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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".

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.

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Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.