BP oil spill: how are my finances affected?Rosie Murray-West, 17:25, Thursday 10 June 2010
BP's shareholders are not the only ones suffering financially from the crisis at the oil giant. Our Q&A explains how anyone can feel the pain.
= Q. I've read that BP is in trouble. What exactly is happening? =
A. BP has been battling for more than 40 days to contain an oil spill in the Gulf of Mexico. It began with an explosion on a drilling rig, and the company has failed to cap the leak completely despite spending over a billion pounds on the clean-up. The American government has waded in to the issue, and shares in the company have plunged on fears that Barack Obama may force the company not to pay a dividend.
Q. Why should it matter to me?
A. BP was, until this crisis, Britain's biggest company. It made up 7pc of the FTSE All Share Index and paid out around 15pc of all the dividend income in Britain. Now the spill has wiped billions of pounds off the company's value, which affects almost everyone in Britain with equity investments.
Q. I don't have shares in BP, so why should that affect my money?
A. Pension funds, investment funds and even your child's trust fund probably have some exposure to the company. Equity income funds some of the most popular funds in the UK tend to hold BP shares because the company is such a good dividend payer. You may well be exposed to BP without even knowing it.
Q. I have a pension through my employer. Will it be invested in BP shares?
A. Probably. Adrian Lowcock of financial information group Bestinvest has calculated that most managed funds have between 0.6pc and 1.2pc of their investments in BP. "It's not great, but it's not critical," he said.
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.
Your company pension probably invests in a tracker fund. Three-quarters of funds in money purchase pension schemes are invested in trackers, totalling £8.2bn, according to PensionDCisions, the pensions analyst. If your fund tracks the FTSE 100, BP makes up around 6pc of it, which is a little worrying.
Remember that BP is only part of your company's holding, and that pensions are long-term investments, however.
Ian Naismith of Scottish Widows said there was "no need to panic".
"Any fall in BP's share price or dividend will affect the value of pension arrangements because its size means that most pension funds will hold a large number of shares," he said. "As pensions are a long-term investment, the impact is likely to be relatively small, though, assuming that efforts to contain the oil leak are successful."
= Q. I'm just about to retire, though. What happens if I don't have time to wait for the share price to recover? =
A. Most company pensions include something called 'lifestyling', which means that as you get older your money is moved out of equities into perceived 'low risk' investments such as corporate bonds and sovereign debt.
http://uk.finance.yahoo.com/news/bp-oil-spill-how-are-my-finances-affected-tele-e2765a21ed81.html?x=0
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