Oil And Gas Firms Struggle With Pension Black Holes

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Written By Mohsen Salami

Oil and gas companies are struggling to plug massive pension black holes as profits and prices continue to drop.

The industry has been ravaged by thousands of job losses and more than half lopped off the price of a barrel of oil over the past 18 months.

As a result, FTSE350 companies cannot keep up with the growing final salary pension gap that just keeps widening as interest rates and bond yields underpinning their retirement schemes fall to record lows.

Pension funds at risk

The latest research from industry pension specialists Barnett Waddingham disclosed that FTSE 350 oil and gas companies are paying less into their pensions now than at any time during the past seven years.

  • The oil and gas sector saw the biggest decrease in disclosed accounting deficits than any other sector in 2015
  • Deficit contributions slumped to the lowest ever to close to £400 million in 2015
  • Pension deficit contributions as a proportion of dividends is the lowest of all industry sectors at 2%
  • Oil and gas was the only industry where no companies paid more than their free cash flow towards deficit contributions
  • The aggregate amount paid towards slashing final salary pension shortfalls in 2015 was 14 pence for every £1 spent on pension provision.

Mike Kennedy, head of oil and gas pensions at Barnett Waddingham, said: “Deficit contributions for the sector have fallen to the lowest level since our research began in 2009 they still represent a significant cost for FTSE350 companies.

QROPS solution for expats

“The oil and gas sector has had a tough time recently with falling profits and it is unsurprising to see reductions in deficit contributions. This volatility is set to continue.  The future funding needed to meet final salary pension obligations is another unwelcome area of uncertainty magnified by the vote to leave the European Union.”

Many expat oil and gas workers in Thailand and the Philippines have moved to take control of their pensions by transferring their onshore workplace pensions to an offshore QROPS.

One bonus is many hard-pressed FTSE350 firms are offering bumper pay outs to retirement savers willing to leave their final salary pensions.

QROPS can offer tax and investment advantages to retirement savers wherever they live in the world, even if they do not have a local QROPS provider, however the recent changes with the QROPS transfer rules may mean an international SIPP is a better option.

Speak to a qualified international financial adviser to know your options.