UK - The newsletter for trustees at Royal Dutch Shell has suggested contributions could be suspended to its £11.9bn UK pension fund for up to a year.
According to the summer 2007 edition of the The Source, a newsletter for the fund's trustees, it said the portfolio had a surplus of £2.9bn.
If the company took the decision to suspend contributions, it would be the first FTSE-100 company to take a “so-called” pension holiday since 2002.
These holidays have been common in the past when surpluses were larger, however, in recent years it has been a practice that has been frowned on by the pensions regulator.
The newsletter also contained a comment from the fund actuary, Michael Webb, who said: “The funding position of the SCPF has gone from strength to strength since the 2005 valuation, further increasing the security of members' benefits. This increase in funding level also enables the company to take a contribution holiday, which will be subject to future annual reviews."
According to the newsletter, the company has agreed with the trustee board to reduce employer contributions to the SCPF to zero with effect from 1 July 2007.
“Financial markets were kind to the Shell Contributory Pension Fund (SCPF) in 2006, so much so that the fund again has substantially more assets than are needed to meet its commitments to members,” said the newsletter.
“As a result, the trustee has agreed to a reduction in company contributions to zero and has modified its investment strategy so as to reduce the extent to which this funding surplus moves up and down as financial market conditions change. The fund remains in a strong position and heavily in surplus, despite the recent market volatility.”
Asked for a response to the story, Royal Dutch Shell refused to comment.
In a separate development, Aon Consulting has said the aggregate funding levels quoted by the largest 200 UK pension funds including all of those in the FTSE-100, had improved by 2% from an aggregate £10bn deficit at the end of August, to a £5bn surplus at the end of September.
Marcus Hurd, senior consultant and actuary at Aon Consulting, said: “Pension scheme funding has appeared to improve in company accounts because the benchmark has been lowered, not because of any real improvement in the financial condition of pension schemes. It remains to be seen whether this will be a long lasting reduction to the benchmark or if it will revert to the previous levels."
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