BHS tells us something needs to change in the relationship between trustees and sponsors. It may take TPR action against trustees for failing to act when an employer still has the funds to make deficits good says Dalriada Trustees director Adrian Kennett
As a child of the 70s, I used to love Woolworths. It had everything a child of that era needed – vast amounts of toys and pick and mix. I eventually grew up (slightly) and got a job.
I spent my first pay packet on a pair of Timberland boots from Austin Reed.
Some years later, I bought my first house. It needed tidying up. So I spent hours in my local Do It All.
Woolworths, Austin Reed. Do it All. All going or gone. Today you can add to that list British Home Stores.
All of those stores had final salary pension schemes. All of them have transferred or are set to transfer to the Pension Protection Fund (“PPF”).
223,000 people now rely on the PPF for their retirement incomes. £2.3 billion has been paid in compensation to members.
The numbers involved in BHS are particularly frightening. £570 million is being quoted as the buy-out deficit. A decade after Philip Green paid dividends to his wife of £400 million.
Those sorts of numbers lead to questions being asked. MPs are demanding to speak to Mr Green.
It all could become a bit of a circus the like of which we haven’t seen since Rupert Murdoch’s wife punched a pie-throwing protestor.
Meanwhile, if we take the BHS case, 11,000 individuals won’t be getting the full retirement benefit they expected. Some not even close to 70% of it, when increases are taken into consideration.
So what is it going to take to break this cycle? I think it is going to take a case where a set of trustees are brought to account by the Pensions Regulator for failing to act when an employer still has the funds to make deficits good.
There is a delicate balancing act to be achieved between providing an employer with enough free cash to enable it to sustainably trade and getting funds into the pension scheme of a struggling sponsor. It is a balancing act which increasingly cannot be achieved by quarterly two hour trustee meetings. Schemes with deficits which are material relative to the net assets of the employers need careful consideration.
Just like for Woolworths, Austin Reed, Do It All, I think it is a question of time before some realise that something has to change. Its time to have some full and frank conversations