The Pensions Regulator investigating the BHS collapse has said Sir Philip Green sold the struggling retailer to avoid taking on the liability for its pension scheme. Drapers takes a closer look at the damning report.
BHS Sutton Coldfield
The nature of the pension schemes
There are two BHS pension schemes: the BHS Pension Scheme and BHS Senior Management Scheme. In combination, they have around 19,000 members.
In the UK, when a pension scheme is found to be in deficit, there is a 15-month deadline to complete valuations, which must be submitted to the Pensions Regulator, along with a recovery plan.
The funding to the BHS pension schemes deteriorated “significantly” between 31 March 2006 and 31 March 2009, following the onset of the recession. Deficits emerged or increased in most UK pension schemes over this period.
The Pensions Regulator said it was only made aware of the BHS sale on 12 March 2015 – the day it was publicly announced. It was not given any details about the terms of the sale or confirmation of the buyer before the announcement, so was unable to assess the merits of a potential application, or understand the impact of the sale on the employer covenant and the schemes.
Using its statutory section 72 information-gathering power, the Pensions Regulator issued 123 formal notices requiring information over the course of the entire BHS investigation. Section 72 of the Pensions Act 2004 gives the regulator the power to demand information and documents that are relevant to its investigations. Failure to comply is a criminal offence. The regulator said the scale of the case was “unprecedented”, and the office reviewed almost 100,000 documents, as well as holding meetings with various parties and stakeholders.
The blame game
In the report, the regulator said Sir Philip Green was personally involved in the schemes, the appointment of new trustees and advisers, and the sale of BHS itself, making him a “key decision-maker” in relation to BHS and its pension deficit. The report concluded that main purpose of the sale [to Retail Acquisitions] was to “postpone BHS’s insolvency to prevent a liability to the pension schemes falling due while it was part of the Taveta group of companies [the parent company for Arcadia Group], ultimately owned by the Green family”.
The regulator explained that this is what led to its decision to send Green a 300-page warning notice in November 2016, which asked him to make a contribution to the pension scheme.
An agreement was reached on 28 February 2017, whereby Green made a voluntary contribution of £363m. A total of £343m has been placed in a fully independent account to fund a new scheme. An additional amount of up to £20m is being held in other accounts to cover expenses and the costs of implementing the new scheme. On average, the new scheme will offer members benefits of around 88% of the value of their full BHS scheme benefits. The amount individuals receive will vary according to their particular circumstances including their age, their length of service with the scheme, and when that service occurred. Green made a total of six offers to strike a deal, but the regulator said the previous offers were too small or too scant in detail.
The BHS case has put the Pensions Regulator, the parties involved and the legislation around pensions firmly under the microscope. The regulator said it is committed to “continuous improvement” and is learning from the case. The regulator admitted it could be more time efficient and communicate more clearly.