Is Shell's bid to avoid trapped surplus a contribution holiday 2.0?

Earlier this month, the scheme wrote to members to inform them of an alternative funding method. The method will allow the company to continue contributing directly to the scheme but payments in excess of statutory requirements will be made into the newly created Contribution Reserve Account: 

Source: Shell

The company said this funding method would be better than contribution holidays, which have been used in the past but created "great volatility" in the company's payments to the scheme.

The new structure came into effect on May 1 2014, and has a 50-year term. The company and the trustees will review the arrangement every six years.   

The fund had a 111 per cent funding level at the end of 2013, which has been attributed to the contribution structure and “satisfactory” investment returns.

The fund closed to new members on March 1 2013, which has given more certainty to the liabilities. “Looking forward, the company has advised the trustee boards that there is the prospect of building up surplus funds in the SCPF beyond what is foreseen to be required to meet future pension payments,” the document stated.

“Since surplus funds cannot effectively be returned to the company, in practice they would continue to build up, becoming trapped for a very long time.”

In April, we reported more schemes were considering reservoir trusts to capture funding gains. 

At the time, Jennifer Chambers, senior associate at law firm Burness Paull, said: “There has been an increased focus – they're being looked at and the prediction is that they’ll be looked at increasingly, due to the fear around trapped surplus.” 

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