THE Select Committee report on the collapse of BHS makes distressing reading.
The whole sorry saga has highlighted poor practices by many of the parties involved, but it is the loyal workers who are worst affected. Many of them served BHS for years, working long hours to do their best for the business and have now lost their jobs.
What has happened to BHS workers’ pensions? Workers need to know that their pensions have not disappeared. The Pension Protection Fund is there to ensure that most of their promised pension will be paid. This insurance is not funded by taxpayers, but by employers sponsoring all other defined benefit pension schemes, who pay a levy each year to contribute to this compensation. Many years ago, when an employer collapsed, workers could lose their entire pension, but those days are now gone.
What is the Pensions Regulator’s role? The Pensions Regulator must protect the PPF insurance arrangement from unfair claims and ensure that employers fund their schemes appropriately. It oversees defined benefit pension funds, to make sure trustees and employers are looking after members’ interests and working towards paying the promised pensions.
Why did the Regulator allow the company to be sold when it had such a large pension deficit? The Regulator does not have the power to prevent a sale, but it does have the power to force a seller to pay more money into the scheme after the sale, if the employer has not supported the scheme. Our pensions regulatory system is deliberately designed to allow companies to be sold, rather than standing in the way, since this can often be the best way to safeguard workers’ jobs and the long-term future of the business.
Can employers just walk away from their pension liabilities when they sell their company then? Certainly not! When employers or trustees are facing difficulties, or when an employer wants to sell a business whose pension scheme has a deficit, the regulatory system provides for negotiations that will allow the employer to relinquish its future responsibilities for the scheme. This is known as the process of ‘Clearance’, whereby the Regulator decides how much the employer should contribute to the pension scheme before it is sold.
Why wasn’t Clearance obtained before the sale? It is really puzzling that Clearance was not obtained from the Regulator before BHS was sold. To grant such Clearance, the Regulator obviously needs to examine all the relevant information showing how the sponsor has supported the pension scheme in the past, what efforts were made to ensure its deficit was dealt with, and whether extra money should be paid in before selling the business on. This would normally be part of a sale process, when a company has a large pension deficit, yet it seems the information requested was not supplied, so no clearance was granted. It is surprising that neither the seller’s nor the buyer’s advisers ensured Clearance was obtained before the sale was completed. This could have allowed Sir Philip Green to ensure no further liability.
How could a business with such a huge pension deficit be sold like this for £1? The pension debt appears not to have been taken as seriously as it should. Indeed some of the pre-sale papers actually state that the business was being sold ‘debt-free’. It is impossible to fathom how a business with a huge pension deficit could be called ‘debt-free’. Other employers must recognise they cannot just pretend their pension liabilities can be passed on to a new owner, without further responsibility.
Should the Regulator be able to stop businesses being sold if they have a large deficit? Corporate deals can often be in the interests of the workforce and improve long-term business prospects. Preventing a company from restructuring might not be in the best long-term interests of the business or could force an employer into insolvency, or weaken its ability to trade. This will not help the pension scheme. Therefore, the Pensions Regulator stands ready to help trustees and employers manage their pension liabilities for the long term in a pragmatic and flexible way, but it does rely on employers providing the necessary information for clearance to be granted. This did not happen with BHS.
Is the Regulator strong enough to hold employers to account? Yes, the Regulator does have strong powers. Of course it is also possible that Parliament might want to give it further powers after the results of its investigations are published. It is important that pension debt does not stop businesses from operating effectively, and there is a delicate balancing act between allowing employers leeway to invest in their business in the short-term and ensuring they can meet their pension liabilities in the longer-term. The regulatory system has worked well so far, but that does not mean there is room for complacency.
Baroness Ros Altmann is the former Pensions Minister. She resigned when Theresa May took office.