The BHS pension scheme, which went into administration last April and has been at the centre of a media storm since, which includes one high-profile arrest, will have £363 million injected in to it by the embattled businessman and former owner.
The agreement comes after Sir Phillip’s offer to pay £250 million was rejected by the Pensions Regulator, which sought a settlement of at least £350 million.
The £363 million is significantly less than the £571 million deficit the firm was left with when it went bust in April last year.
However, with this new deal, retirees receiving pensions will get the same starting pension as originally promised. Mr Green also says the cash injection will lead to a “significantly better outcome” than if the BHS pension scheme came under the Pension Protection Fund.
I've got an affected BHS pension. What does it mean for me?
Mr Green's cash injection will fund a new independent pension scheme - £343 million has been ringfenced to fund the new scheme, while an additional amount of up to £20 million is being held to cover expenses and the costs of implementation.
The Pensioners Regulator (TPR) says the board of the new scheme, which is expected to launch in a "number of months", will be made up of three professional independent trustees "to ensure there is continuing robust independent governance".
The 19,000 members of the current BHS finaly salary schemes will have three potential options:
- to transfer to the new scheme
- opt for a lump sum payment - only available to the approximately 10,000 members with pension pots of up to £18,000
- or remain in their current scheme and receive benefits from the Pensions Protection Fund (PPF).
Affected pension holders will be contacted in due course by the TPR, and don't need to take action until this date.
A helpline will also be launched in due course so members can discuss their options with an independent financial adviser - however, it's not yet been decided if this will be a free or chargeable line.
How much individuals receive will vary according to their particular circumstances, based on a number of factors, including their age, their length of service and when that service occurred.
Key differences between the PPF and the new scheme are as follows:
- those under 60 will not be subject to the 10% reduction in their starting pension under the new scheme that applies to members in the PPF.
- benefits payable in retirement and built up prior to April 1997 will increase at 1.8% per year under the new scheme. This compares to no increases for pre-97 benefits provided within the PPF.
Tom Selby, senior analyst at AJ Bell, comments: "It is worth bearing in mind that while the deal avoids some of the harsher penalties from entering the PPF – including a 10% cut in benefits for those who have yet to retire and a cap on annual payments – many members will still be worse-off than they would have been had BHS not failed. This is inevitable given the scheme’s deficit of £571m is £208m more than Sir Philip has stumped up. TPR says BHS staff will get, on average, 88% of what they would have received under the original terms of the scheme – primarily as a result of cuts to inflation protection."
'I would like to apologise to the BHS pensioners'
Here's Mr Green's full statement issued today: “I have today made a voluntary contribution of up to £363 million to enable the trustees of the BHS Pension schemes to achieve a significantly better outcome than the schemes entering the Pension Protection Fund (“PPF”), which was the goal from the outset.
"The settlement follows lengthy, complex discussions with the Pensions Regulator (“tPR”) and the PPF, both of which are satisfied with the solution that has been offered. To achieve a significantly better outcome than entering the PPF, the contribution required to achieve this long-term solution was arrived at by the actuaries for both The Regulator and the Trustees.
"All relevant notices, including legal matters and claims from tPR, have been withdrawn bringing this matter to a conclusion.
"Mr Chris Martin, Chairman of the BHS Pension trustees, who will provide his own press release, will confirm that he is very happy with the outcome that has been achieved.
"Once again I would like to apologise to the BHS pensioners for this last year of uncertainty, which was clearly never the intention when the business was sold in March 2015.
"I am also happy to confirm that any of the pensioners that have faced cuts over the last year will now be brought back to their original BHS starting level pension and will all be made whole.
"I hope that this solution puts their minds at rest and closes this sorry chapter for them.”
What do the PPF and TPR say?
Alan Rubenstein, chief executive of the Pensions Protection Fund comments: “This settlement for the BHS pension schemes, agreed between Sir Philip, the Pensions Regulator and the trustees, with the involvement of the PPF relieves the PPF’s levy payers of the cost of meeting the initially reported shortfall.
“The Pensions Regulator will be monitoring the new scheme and members will be protected by the PPF.”
The Pensions Regulator chief executive Lesley Titcomb says: “The agreement we have reached with Sir Philip Green represents a strong outcome for the members of the BHS pension schemes. It takes account of the interests of both pensioners and the PPF, and brings a welcome level of certainty to present and future pensioners.
“Throughout our discussions with Sir Philip and his team, we have always been clear that we were determined to achieve the right outcome for members of the schemes both in terms of the amount and the structure of the settlement.”
Enforcement action by the Pensions Regulator continues in respect of Dominic Chappell - the businessman Sir Philip Green sold BHS to for £1 - and Retail Acquisitions Limited.
"The announcement is not without its challenges"
Nathan Long, senior pension analyst at Hargreaves Lansdown says: "After months of uncertainty, most members can now look forward to having higher pensions than under the safety net of the Pension Protection Fund. This includes an element of inflation proofing on their pension accrued before 1997, it will now increase at 1.8% per annum where as there are no increases under the PPF compensation.
"The announcement is not without its challenges. It appears members will have to elect to transfer to the new scheme to get the better benefits. Many will elect to do this, but the challenge is contacting all the former employees many of whom may have changed address and be hard to track down.
"An increase of 1.8% looks pretty healthy given the current levels of inflation in the UK. If inflation stays lower for longer this could end up being a valuable perk of the new plan for members.
"Whilst this is a positive outcome for BHS Pension members who were otherwise headed into the PPF, there remains unanswered questions about the role of the Pension Regulator when it comes to mergers and acquisitions."
Tom Selby, senior analyst at AJ Bell, says: “Confirmation of the £363m deal agreed between Sir Philip Green and The Pensions Regulator brings to an end months of stand-off between the two parties. It will also be welcome news to thousands of scheme members who could have been forced to take severely reduced benefits on entering the Pension Protection Fund.
“However, it is worth bearing in mind that while the deal avoids some of the harsher penalties from entering the PPF – including a 10% cut in benefits for those who have yet to retire and a cap on annual payments – many members will still be worse-off than they would have been had BHS not failed. This is inevitable given the scheme’s deficit of £571m is £208m more than Sir Philip has stumped up. TPR says BHS staff will get, on average, 88% of what they would have received under the original terms of the scheme – primarily as a result of cuts to inflation protection.
“This result will be viewed as something of a victory for TPR and acts as a warning shot to any bosses who think that, once they have sold their business, any obligation to pensioners disappears.”