01 Mar 2017

The Pensions Regulator announced yesterday that it has reached a £363m cash settlement with Sir Philip Green in respect of the BHS pension schemes.

The demise of BHS and the significant deficit in its pension schemes played out very publicly over 2016. BHS employees who had lost their jobs also faced having their pension rights reduced if their schemes fell into the Pension Protection Fund (PPF).

On 2 November 2016, the Pensions Regulator (TPR) sent warning notices to Sir Philip, Taveta Investments Ltd, Taveta Investments (No 2) Ltd, Dominic Chappell and Retail Acquisitions Ltd in relation to the BHS pension schemes. In the notices, TPR set out evidence to support the exercise of its anti-avoidance powers to seek redress for the 20,000 members of the underfunded schemes.

The warning notice to Sir Philip required him to pay £350m in respect of the pension schemes. He subsequently offered £250m, presenting it as a “credible and substantial proposal”. It appears that further negotiations have increased that offer.

The settlement will fund a new independent pension scheme overseen by three professional independent trustees. Members will be given the option to:

  • Transfer to the new scheme which will pay the same starting pension as was offered by the original BHS schemes (this will be higher than the pension that would have been payable by the PPF);
  • Opt to take a lump sum if they have a pension “pot” of up to £18,000; or 
  • Remain in the BHS pension schemes, currently in a PPF assessment period, and receive at least PPF benefit levels. 

£343 million of the settlement has been placed in an escrow account to fund the new scheme and up to £20 million is being held in other accounts to cover expenses and the costs of implementing the member options and the new scheme.

TPR’s anti-avoidance enforcement action against Sir Philip, Taveta Investments Ltd and Taveta Investments (No. 2) Ltd will now cease. However, enforcement action continues in respect of Dominic Chappell and Retail Acquisitions Limited.

Our comment

BHS scheme members will probably be breathing a sigh of relief at this news. TPR views it as a good outcome as it had to balance the amount on offer “against what we might achieve by pursuing anti-avoidance action, the risk of a prolonged period of legal challenge in the courts, and the delay and uncertainty that would bring to members.”

In the Green Paper published last week, the Government stated its belief that the wider system for protecting defined benefit pension members’ benefits is working broadly as intended “[h]owever, we are not complacent”. 

The BHS settlement may be cited as a belated vindication of the Government’s belief but it is wise to avoid complacency. Press reports over the weekend suggest that yet another struggling company with a defined benefit scheme deficit, Hoover, is in talks with TPR and the PPF with a view to reaching a deal whereby the PPF will take on the scheme. 

The Work and Pensions Committee criticised TPR as being “reactive” and “slow-moving” in the collapse of BHS. In its evidence to the Committee, TPR called for greater powers including the possibility of mandatory clearance applications in circumstances where corporate activity might pose a material risk to a scheme. The Government has looked at how TPR’s powers could be strengthened to provide additional safeguards and the Green Paper sets out how this could be done.

It seems that momentum is building to extend TPR’s powers. If so, we hope that the Government keeps to its promise and ensures that any new powers are proportionate.