December 3, 2020

A pivotal point for pensions

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News from the high street filled column inches and broadcast slots this week as Topshop owners Arcadia Group went into administration followed by Debenhams after it failed to agree a rescue bid from JD Sports. Some 25,000 jobs are expected to be lost and the future of the high street once again looks grim as some of Britain’s most iconic retail brands are set to disappear.

The news also raised the issue of employee pensions, in particular those who work for Arcadia which has an estimated £350m pension scheme deficit affecting 10,000 employees. The pensions industry and MPs are calling for Arcadia’s owner Sir Phillip Green to plug the gap. Otherwise, those employees who have not reached the scheme’s retirement age could see a 10% cut to the value of their pension pot. The pension scheme will now be assessed for entry into the Pension Protection Fund (PPF) which helps those in defined benefit schemes where the sponsor fails by paying at least 90% of the value of pensions built up.

Unfortunately for members, Arcadia owners Sir Phillip Green and Lady Green don’t have a great track record on plugging deficits. In 2015 Sir Philip sold BHS in part to dodge responsibility for its pensions shortfall.  After pressure from MPs and the regulator, he did put in £363m to decrease the deficit, but 19,000 members still didn’t get their full pension.

Crunch time for the PPF

While all eyes will be on whether Sir Phillip Green and Lady Green do the right thing this time round, this is also a crucial time for the PPF’s reputation. It is being watched by MPs after last year’s deal to allow Arcadia to halve its payments to the company pension fund in order to keep the business afloat at the time.

The merits of that decision are being scrutinised and tested now. The fund needs to show it has learnt lessons from the collapses of BHS and British Steel where pensioners were denied their full pensions and many became victims of scammers, and do everything to fight for Arcadia’s pension scheme members.

The setting up of the PPF in 2005 was a signification milestone for the UK pension industry and consumer protection but it hasn’t always been plain sailing and with it consumer confidence has been bumpy. Consumer protection is at the heart of this case and this is a pivotal moment for the PPF and its relationship with pension scheme members. As the administration of a business is often a long, drawn-out period, regular communication is going to be key between the PPF and scheme members but also with MPs, especially against the current backdrop of economic uncertainty.

It is hoped new powers being introduced by the new Pensions Scheme Bill will be given Royal Assent and written into law in time to provide the Regulator with more ammunition in this case. It will also provide a first test for the Bill, which will make it a criminal offence to have committed ‘wilful or grossly reckless behaviour’ in relation to a pension scheme carrying a maximum prison sentence of seven years for the company bosses responsible. They have been warned.

 

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