By ADRIAN LOWCOCK 11/06/2010
BP is an important company for British pensions. Consider the size of the company, before the crisis it made up 7% of the FTSE All Share, and for most pension funds it will be one of their three largest holdings.
US
Barack Obama has come out with some aggressive rhetoric regarding BP. The US administration wants the dividend to be stopped until the oil spill in the gulf has been stopped. There is a sense of protectionism in this issue as the company operating the well is American.
BP dividend
The issue is that BP’s dividend accounts for £1 out of every £7 for UK investors’ pension funds. But with BP being about 39% owned by US investors the issue of the dividend affects them as well. However, the current demand from the US suggests the dividend will only be cut for one quarter, not the whole year.
How will it affect your pension?
If you have a final salary pension scheme, the fall in BP shares should not affect you, as the pension you get should be guaranteed unless the company goes bankrupt. However, if you have a defined contribution scheme, the crisis will affect the value of your pension pot.
How much might you have in BP?
For those with well diversified portfolios, we estimate the total exposure to BP will be between 0.6-1.2%, not great but not disastrous either.
The BP issues highlights the risks of investing in individual companies - until the 20th April BP was seen as one of our most robust and financially sound companies. Now, less than two months on, there are fears that the company is bankrupt. Whether this is true or not the share price has fallen around 45% from peak to trough, about £59 billion.
If there is anything you wish to discuss please call one of our Investment Professionals on 020 7189 9999.