The news that BP was exploring an insurance deal for its defined benefit pension fund came shortly before the UK chancellor Jeremy Hunt offered some modest policy tweaks to alleviate the chronic fear of risk that dogs Britain’s private sector pension system.

Of course, the two are connected. The story starts 20 years ago when pension provision was quite different to the situation today.

Back then, BP was part of a virtuous circle of big UK multinationals, that offered jobs for life and funded their final salary pensions by investing in other companies with large defined benefit pension schemes. After the Dotcom bubble burst in 2000, the first cracks appeared: weak companies failed leaving their pensioners destitute, while fair value accounting showed how expensive such pensions were, if treated as an irrevocable inflation-linked guarantee on the corporate balance sheet.

This use of market bond yields to value pensions was controversial at the time. But it came about because the old system, where actuaries used equity returns as a discount rate, was abused. Under pressure from shareholders, companies exploited it to stop paying pension contributions. Bond-based discounting forced them to contribute properly, along with a pensions regulator. As BHS showed in 2016, sometimes even that wasn’t enough.

When I first encountered the BP pension scheme in 2007, these problems seemed far away. The head of the trustees, Reg Hinkley, was an industrial chemist who was promoted to run BP’s finance department before moving to the pension scheme. The fund was still open to new members, and was 75% invested in equities. Hinkley was happy because even with bond-based discounting, the ratio of assets to liabilities was 130%.

This visualisation shows various metrics for the BP Pension Scheme between 2006 and 2022. Click on the buttons above the chart to change the metric. Data source: Risky Finance

The BP trustees’ job could almost be summarised on a postcard. Hold £30 billion of equities. Pay £1 billion a year in benefits. Take £7-800 million a year in sponsor contributions, with investment returns doing the rest. Hinkley spoke warmly of the relationship with the corporate sponsor. In his words, they would ‘step up’ with additional contributions if the stock market tanked.

When I next encountered the pension scheme in 2011, Hinkley was gone and BP was in a very different place.