A transfer of sponsor has saved Mothercare UK’s pension schemes from falling into the Pension Protection Fund, following the collapse of the retailer into administration on Tuesday.
The maternity specialist company has now finalised a restructure, which safeguards nearly 6,000 members of Mothercare UK’s pension schemes by transferring the plans to the global parent company.
A statement from Mothercare plc issued on November 5 said the pension scheme deficit would be transferred to Mothercare Global Brands Limited, a wholly owned subsidiary of Mothercare plc.
The directors of the sponsor also appear to have acknowledged that they owe duties to members. This can perhaps be attributed to the efforts of TPR, PPF and wider pensions stakeholders over the years
Dan Mindel, Lincoln Pensions
At its last actuarial valuation in 2017, Mothercare UK’s pension schemes had a deficit of £139m.
Part of the restructure includes a revised payment schedule agreed with the pension scheme trustees, reducing contributions over the next 18 months.
Commenting on the restructure, Clive Whiley, chairman of Mothercare, said: “We are doing everything we can to support the longstanding and hard-working colleagues during what is clearly a difficult period.”
Covenant improvement for schemes
Mr Whiley added: “Following the completion of our transformation programme, Mothercare – one of the leading global brands for parents and young children – should have a bright future ahead as a solvent and cash-generative group, notwithstanding the administration of Mothercare UK and MBS.
“Today’s actions seek to return Mothercare to a stable and sustainable footing, and to preserve value for many of our stakeholders – most notably our pension fund, our global franchise operations and lending group – who might have otherwise faced significant losses.”
The trustees’ agreement to a revised schedule of contributions means the defined benefit schemes will get less money from their new sponsor in the short term, but this has been balanced against the importance of having a sustainable employer standing behind the scheme to make future contributions.
Penny Green, a trustee executive at BesTrustees and who sits on the scheme’s board, commented: “The trustees of the pension schemes have been fully briefed by the company in the period leading up to the transaction.
“The trustees have taken independent advice as the transaction has progressed and consider the transfer of the pension schemes to Mothercare Global Brands Limited, together with the international business and its accompanying financing and restructuring, to be in the best interests of the members of the pension schemes.”
Andrew Evans, independent trustee and trustee chair, added: “We appreciate the company keeping us appraised of the transaction at an early stage and updated as the discussions progressed. We believe that the business has a solid base, which will allow it to trade profitably going forward and is therefore in a better position to support the pension schemes over the long term.”
Regulators’ engagement pays off
A spokesperson for the Pensions Regulator said: “We are in discussions with the trustee, the company’s administrators and the PPF at this difficult time to ensure the interests of members are protected to the fullest extent possible.”
Commenting on the Mothercare crisis, Dan Mindel, managing director at Lincoln Pensions, said the deal was likely to be a good outcome for trustees and members.
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“Transferring its two employee pension schemes from the UK subsidiary to the group parent company would certainly be a good outcome for the scheme, especially since the group owns the profitable overseas part of the business,” Mr Mindel said.
“The pensions industry in general will also be pleased to see members of a retail sector scheme achieve a better outcome than the PPF.
“For Mothercare, the situation has been brewing for some time and so all of the trustees’ contingency planning work will be coming into play.”
He continued: “The directors of the sponsor also appear to have acknowledged that they owe duties to members. This can perhaps be attributed to the efforts of TPR, PPF and wider pensions stakeholders over the years in ensuring schemes are properly represented and supported in times of distress.”
