Sir Philip Green will contribute £363m to a new pension scheme for former employees of BHS, under a settlement arrangement that achieves better outcomes for members than entry into the Pension Protection Fund.
Agreed with the Pensions Regulator and announced on Tuesday, the voluntary cash contribution is the result of months of private discussions and intense public scrutiny.
As a result of the settlement, members of the BHS Pension Scheme will now be offered three options, including membership of a new scheme run by three independent professional trustees.
The settlement shows that the regulation can work, but nobody thinks this has gone perfectly
Steve Webb, Royal London
That scheme will offer the benefits originally promised to members, but will reduce pension increases to the legislative minimums, which use the consumer price index and various caps.
The proposal
Pre-1997 benefits will be increased at 1.8 per cent a year. The original scheme offered members increases in line with the retail price index, capped at 5 per cent for benefits accrued before April 2005 and 2.5 per cent for those accrued after.
Those with benefits valued at less than £18,000 will be offered a cash lump sum payment.
Members who reject both of those options will remain in the current schemes, which are in the PPF assessment period.
The £363m contribution, which includes £20m towards the cost of implementing the new arrangements, falls short of the scheme’s buyout deficit, valued at £571m. It is, however, well clear of the estimated £275m cost to the PPF of securing the benefits.
The scheme will also pay the PPF levy in the same way as other private sector schemes. The lifeboat is currently consulting on a calculation methodology for schemes which are effectively without a sponsor.
The settlement brings the regulator’s enforcement action against Green and Taveta Investments to a close. Procedures against Dominic Chappell and Retail Acquisitions will continue.
A welcome end for members
The deal was welcomed both by the regulator and by politicians, including Work and Pensions Select Committee chair Frank Field, who called it “an important milestone” in the search for justice for BHS scheme members.
That was seconded by shadow pensions minister Alex Cunningham, who noted the extent of the struggle: “It was appalling that it took the threat of legal action by the Pensions Regulator to get Philip Green to do the right thing and pay up as he ought to have done in the first place.”
Source: MandateWire
The benefits promised under the new scheme were also greeted with approval from many in the pensions industry.
“It seems like it could be presented as a good deal,” said Martin Hunter, principal and covenant specialist at consultancy Punter Southall.
He noted that members transferring into the new scheme will lose out on the pension increases they were previously promised, but added: “It’s often the case that members don’t place that same level of value on them.”
What next for the regulator?
As the dust settled on the regulator’s dealings with Green, many experts were acutely aware of the impact both the scandal and the eventual outcome may have on the UK’s regulatory framework.
“It will now be interesting to see the extent to which the regulator will be able to spot the next scenario of this nature, proactively intervene ahead of the corporate collapse and ensure this doesn’t happen in the same way again,” said Matthew Giles, partner in law firm Squire Patton Boggs.
Commentators differed over whether, to do that, the DB framework needs changing. Hunter argued that the outcome supported the Department for Work and Pensions’ assessment that there was no systemic issue with defined benefit pensions.
Will M&As change in the post-BHS era?
The collapse of BHS saw another household name disappear from the high street. The headlines about pensioners having their pensions cut back caused a public and political outcry.
But Faith Dickson, partner in law firm Sackers, said to use the settlement as justification for not taking action would be disappointing given the expense and duration of the dispute with Green.
She urged government to take the opportunity “to find better ways of putting more flexibility into the system, to deliver better outcomes for members where schemes are struggling”.
If nothing else, she said, “maybe it suggests that [the regulators] should be keener to exercise their powers”.
Steve Webb, director of policy at provider Royal London and former pensions minister, said it was unlikely the deal would mask problems with the framework.
“It shows that the regulation can work, but nobody thinks this has gone perfectly,” he said.
