One of the Arcadia Group of companies withdrew a guarantee for the BHS pension in March 2012, revealed Alan Rubenstein, chief executive of the Pension Protection Fund (PPF), at a select committee inquiry today.
Alan Rubenstein from the Pensions Protection Fund
The parliamentary inquiry into the BHS collapse started today with a session investigating the BHS pension fund deficit. Rubenstein gave evidence alongside Pensions Regulator chief executive Lesley Titcomb and its director of case management Nicola Parish.
Rubenstein told the work and pensions select committee the BHS pensions scheme first came on the PPF’s “radar of concern” in 2012, when the deficit was around £200m. A company can reduce the levy it pays into the PPF if they can provide a guarantee against it.
Rubenstein explained that Davenbush, one of the Arcadia Group of companies, was used as a guarantor in 2011, but it was judged not to have sufficient funds to meet the value of the shortfall it was being pledged against in 2012. Its use as a guarantor lapsed, so BHS’s PPF levy subsequently increased.
Davenbush had assets of £22m and made a loss of £200,000 that year, documents filed at Companies House show. Davenbush appointed Duff & Phelps as administrator this month.
Rubenstein pointed out that many companies use guarantors without sufficient funds to lessen the levy and the situation was not unique to BHS.
Referring back to the present-day situation, he said the initial cost to the PPF is estimated to be £275m, based on the difference between assets taken on and the value of the liabilities. He denied that the pensions levy would go up as a result.
He said there were “lessons to be learned” about BHS’s 23-year recovery plans, which he first learned of in 2012. The average recovery period was eight years in 2006 and increased to closer to nine years today, he said, confirming that BHS’s “ambitious” plan was “more than twice the average”.
He said 6,000 existing pensioners will receive 100% of their entitlement now the scheme has passed into the PPF, while 13,500 deferred pensioners will receive 90% up to a cap, which will not affect any members of the main scheme. The cap will affect 10 members of senior staff in the pension scheme, he said.
Titcomb said the Pensions Regulator first learned of the BHS sale to Retail Acquisitions for £1 last year through the newspapers. She admitted that the BHS pension scheme’s 23-year recovery plan in 2012 was “highly atypical” but said it did not meet the threshold that would have triggered proactive engagement.
MP Frank Field, chairman of the work and pensions committee, called for revision of the scheme, to which Titcomb replied: “It’s not a perfect science and we learn as we go.”
“There will always be a few people who don’t play by the rules but I am operating within the framework which is set by parliament,” she said. “The BHS situation crystallised two weeks ago – I have not yet had chance to reflect on all the lessons that may come out of it.”