Might Shell follow Boots in disposing of its U.K. Pension Funds?

The Decision of Boots to dispose of its £4.8bn Pension Scheme to Legal and General is significant because with 53,000 members this is the largest such scheme to move to an insurer. You can read a specialist view of the decision here:

https://www.pensionsage.com/pa/Boots-completes-4-8bn-buy-in-with-landG.php

To me the key line in the report is this one:

“The trustee and Boots have written to members to inform them of the changes, confirming that savers in the scheme will be provided with individual annuity policies issued by L&G, who will then be responsible for paying members’ benefits directly.”

In effect every Boots pensioner will cut their pension links with their former employer and, I assume, nominally receive a DCF value lump sum based on their pension value. The value is a function of the current annual amount of their pension and their age related (but otherwise unspecific) life expectancy. The lump sum is notional in that it can only be used for the purchase of a L&G annuity. Whether the annuity is inflation linked, isn’t clear. I would assume so.

Could Shell follow the Boots example?

The current company backed model for our pensions is in my opinion infinitely preferable to having an insurer buy in. However there are more than straws in the wind that Shell’s commitment to its pensioner stakeholders is shaky, at least in the U.K. The failure to meet its promise to ensure pensions meet inflation, the removal of elections for trustees and the overt flirtation with the Consumer Price Index are among these straws. I also sense that the Pension Fund trustee boards see their role primarily as mouthpieces for the company rather than representatives of the pensioner community.

In a conventional Defined Benefit pension scheme, such as the SCPF and SOCPF , the guarantor of the scheme is the Sponsor, Shell. The very high financial strength of Shell in assets, profits and share value, makes this as close to gold standard security as one could imagine. In the event that Shell followed Boots’ example (there is no current suggestion that this will happen) the security for members would, in my view, be less. In the past famous financial services companies like Lehman Brothers have folded. The unexpected has happened.

My gut feeling, without any direct hard evidence, is that Shell would wish at some point in the future to follow Boots’ example and divest itself of its DB Pension Funds. Put bluntly but truthfully the funds are of no value to the company and require management to devote some time to their management. Cost without Benefit is unattractive in the modern day world of business !