Why do BP and Shell offer different employee pension benefits?
Defined benefit pension schemes are ‘designed’ by the employer as an employee benefit. That means they all have different structures and benefits. Schemes can differ in terms of death benefits, retirement age, income inflationary measures and lump sum conversion options.
Here, we compare the pension benefits offered by BP against Shell’s pension package.
Points to note – for international scheme members
One notable difference before we begin our comparison is that Shell often offers expatriates membership to the Shell Overseas Contributory Pension Fund (SOCPF). This is NOT a UK pension, but if you hold a SOCPF scheme, there are planning opportunities available to you. Get in touch to discuss your planning options.
While working abroad, members of the BP pension can often apply for an enhancement to the UK Pension Lifetime Allowance. Contact us for more information about this. We’ve helped BP pension clients in the Middle East obtain uplifts to the LTA of up to 40%.
Head to head: BP v Shell Employee Pensions
|Feature||BP Pension Scheme||Shell’s SCPF||RMP Comments|
|Retirement Age||Scheme retirement age is now 65 years. Members at and before 2006 reserve the right to take income unreduced from age 60.||Scheme retirement age is now 65 years. Members at and before 2009 have a retirement age of 60 years.||Both Shell and BP have now switched to a later retirement age for new members. This is unsurprising given the cost of running a defined benefit scheme. As with most schemes, both allowed existing members to ‘preserve’ their scheme pension age at the point the change was made.|
|Death Benefits for deferred members (no longer active)||2/3rds spouse (66.7%) both pre and post retirement, with a 5 year guarantee. Some provision for dependent children.||60% spouse both pre and post retirement, with a 5 year guarantee. Some provision for dependent children.||BP lead the way in scheme death benefits. Both schemes offer higher spousal income benefits than the usual 50% that we see in most DB schemes.|
|Inflation Measures||RPI to a maximum of 5% pa GMP benefits are increased in line with scheme rules||RPI to a maximum of 7% pa GMP benefits are increased in line with scheme rules||Both link to RPI, which is the preferable inflationary measure, typically 1% pa higher than CPI. Shell offer a more favourable inflation ‘cap’.|
|Early Retirement Option||Available from 55 years. Current scheme rules mean a 3-4% pa reduction in income, from normal retirement age, dependent on company consent.||Available from 55 years. Current scheme rules mean a 3.5% pa reduction in income, from normal retirement age.||It is important to check with a scheme and gain an ‘early retirement quote’ to help you calculate whether it is financially worthwhile to take income earlier than scheme retirement age.|
|Lump Sum Option||Maximum of 25% of capitalised value. Income is reduced by commutation. Commutation factors are subject to regular review and must be obtained upon request for an accurate calculation.||Maximum of 25% of capitalised value. Income is reduced by commutation. Commutation factors are subject to regular review and must be obtained upon request for an accurate calculation.||This is typical of most DB schemes, unless they offer an automatic lump sum. You will be offered options at retirement for pension benefits with and without lump sum.|
|Funding Status||105% as most recently stated by BP in April 2020||106% as detailed in most recent audit of Dec-2018||Both pensions are unusually very healthy. This can lead to good transfer values.|
|Transfer Values||Very good||Very good||We have dealt with numerous clients of both schemes, and seen very favourable transfer values offered.|
Research your pension scheme benefits
Use our free research toolkit to contact your scheme and find out how much your pension is worth.
First, find out the scheme contact details in our online pension scheme register, then complete your details below for our free research toolkit. Our toolkit helps you research your own pension benefits to the standard of a financial adviser.