BP pulls the plug on final salary pension

Published on Wednesday 3 June 2009 09:59

OIL giant BP has announced it is to scrap its final salary pension scheme to make savings of up to £120 million a year.

The oil company was one of the last remaining on the FTSE 100 to offer such a scheme, but believes it places too much of a burden on shareholders.

Chief executive Tony Hayward, who took over two years ago, said the changes would be made from April 2010, closing the final salary pension to new employees.

They will instead be invited to join a money purchase scheme, with BP paying 15 per cent of employees' wages towards their retirement.

A spokesman for the company said "it was the right thing to do" owing to shareholders shouldering the risk of movements in the value of investments.

He said: "We are doing this to avoid burgeoning future liabilities. It is a big financial burden to leave to shareholders."

The impact of increased life expectancy across the UK has added additional pressure on the final salary scheme.

Around 12,000 of BP's 16,000 UK workforce are already in the scheme and will be unaffected by the changes.

A further 39,000 are already drawing the pension and 18,000 employees yet to retire will be entitled to a payout in line with their original agreement with the company.

BP is confident that within ten years changes to the pension scheme will produce savings of 120m a year.

The current scheme is already well-funded, with last year's accounts showing a 1.58 billion surplus to cover its liabilities.