The House of Commons Work and Pensions and Business, Innovation and Skills Committees have issued their joint report into the collapse of British Home Stores. In this LawNow, we look at the Committees’ findings concerning pensions.
The two BHS pension schemes, established on Sir Philip Green’s acquisition of BHS in 2000, saw their funding positions deteriorate significantly, the combined estimated buy-out deficit increasing from £354m to £571m between March 2009 and March 2016. A 23-year recovery plan was put in place for the main scheme following the March 2012 valuation. In April 2015, Sir Philip’s Arcadia group then sold the BHS business to an untested buyer, Retail Acquisitions Limited, for £1. It did so without seeking Pensions Regulator clearance for the transaction.
In March this year, the schemes entered PPF assessment following a CVA. In April, BHS went into formal administration. The next day, the two Select Committees established an inquiry to examine the surrounding circumstances.
The report’s findings
The report concludes, in relation to pensions, that Sir Philip Green had given “insufficient priority” to the schemes over an extended period and that the failure to resolve pensions issues “contributed substantially to the demise of BHS”. The Committees suggest that Sir Philip has a moral duty to resolve the situation urgently, which will “undoubtedly require him to make a large financial contribution.”
The detailed report confirms that the Committee specifically blames Sir Philip for:
- the schemes’ deficit (on the basis that BHS had made insufficient contributions, and resisted paying higher ones);
- the failure of a proposal, “Project Thor”, to address pension issues by a scheme restructuring agreed with the trustees and the Regulator (which the Committee says was put on ice in order to avoid the Regulator asking awkward questions about historic dividend and other payments from BHS); and
- concealing the extent of the pensions problem on the sale of BHS in 2015.
The Regulator itself is described as “reactive” and slow moving”, but is absolved from ultimate blame which, according to the Committee, should fall on Sir Philip. Instead, says the Committee, the Regulator needs to be given “the powers, resources, leadership and commercial acumen to act decisively”.
The wider pensions picture
The Work and Pensions Committee is undertaking a wide-ranging inquiry into the adequacy of DB scheme regulation; the Regulator’s resourcing and use of regulatory powers; the implications of the regulatory approach for company behaviour; and the sustainability of the PPF.
The Committee indicated today that it continues to consider these issues, and it is worth noting that a Pensions Bill, to be published in the autumn, will provide the Government with a ready vehicle to make any changes to the scope of pensions regulation that the Committee may recommend. After today’s report, such change must be more likely: for the pensions industry, it is a question of “watch this space”.
The Report can be found here: http://www.parliament.uk/business/committees/committees-a-z/commons-select/work-and-pensions-committee/news-parliament-2015/bhs-report-published-16-17/