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Mix-Ansicht- Pension Fund BP - KEEP-COOL, 18.03.2003, 20:13
Pension Fund BP
-->BP Pension Fund Has $3.4 Billion Deficit Compared With Surplus
By Peter Woodifield
London, March 18 (Bloomberg) -- BP Plc, Europe's second- largest oil company, said its pension fund lost $5 billion last year as slumping stocks cut the value of its assets and costs rose.
The London-based company's $19.3 billion retirement fund had a deficit of $3.4 billion at the end of 2002, compared with a surplus of $1.6 billion a year earlier, it said in its annual report.
The largest U.K. companies accumulated record pension fund deficits of more than 27 billion pounds ($42 billion) by the end of last year amid the longest bear market for equities since World War II. BP also is joining larger rival Royal Dutch/Shell in saying higher pension charges are dragging down earnings.
``We automatically look now at pensions,'' said Gavin Suggett, chief executive of The Alliance Trust Plc, which oversees the equivalent of $1.9 billion in Dundee and holds shares in BP and Shell. ``It wouldn't have been top of the agenda three years ago.''
BP this year may deduct more than $900 million from its 2003 earnings to cover a surge in the cost of retirement benefits.
Chief Financial Officer Byron Grote said last month pension and health-care charges will rise by $300 million this year. That's 48 percent more than the gross $621 million charge last year, according to data published in the company's annual report.
On a net basis, the $181 million reduction in ``settlement, curtailment and special termination'' costs reduced the 2002 charge to $440 million, or about 5 percent of net income, compared with $427 million a year earlier, the annual report showed.
``There is an issue of under-funding,'' said Andrew Kelly, who helps manage the equivalent of $1.5 billion at SVM Asset Management in Edinburgh, including BP and Shell shares. ``They have very strong cash flow which allows them to do something about it without having to worry where the cash is coming from.''
Shell Costs
Shell's profit this year will be reduced by as much as $400 million because of higher pension charges, Chief Financial Officer Judy Boynton said last month. Shell will publish more details in its 2002 annual report on March 21.
Shell posted a $6 billion deficit in its $36 billion retirement funds at the end of 2002, compared with a $3.8 billion surplus at the end the previous year.
The concern is over so-called defined benefit plans, which make lifetime payments based on a worker's final salary and leave companies footing the bill should there be insufficient money in the funds. Ninety-four companies in Britain's benchmark FTSE 100 Index have such plans.
Companies must disclose each year whether their funds have enough assets to meet obligations, according to a new accounting rule called FRS 17. When that regulation goes into full effect in 2005, the size of pension deficits or surpluses will affect company earnings and balance sheets
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