Thousands of ex-BHS staff will be offered the starting pension they were originally promised with higher than PPF benefits
The Pensions Regulator (TPR) has agreed a cash settlement worth up to £363 million with Sir Philip Green.
The arrangement, which has the support of the trustees of the two BHS pension schemes, will see Sir Philip provide funding for a new independent pension scheme to give pensioners the option of the same starting pension as they were originally promised by BHS, and higher benefits than they would get from the Pension Protection Fund (PPF).
Today’s announcement brings certainty to the 19,000 members of the existing BHS pension schemes and closes TPR’s enforcement action against Sir Philip.
TPR Chief Executive Lesley Titcomb said: “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.”
The board of the new scheme will be made up of three professional independent trustees to ensure there is continuing robust independent governance.
Members of the current BHS schemes will have three potential options: to transfer to the new scheme, opt for a lump sum payment if eligible or remain in their current scheme (and receive benefits from the PPF).
The lump sum payment option will be available to members with small pots of up to £18,000 in total value. Those who choose not to take a lump sum and opt to transfer to the new pension scheme will be entitled to the same benefit structure as all other members. The new scheme will also be eligible for the PPF.
All the settlement money is being held in segregated bank accounts. £343 million has been placed in an escrow account to fund the new scheme. An additional amount of up to £20 million is being held in other accounts to cover expenses and the costs of implementing the member options and the new scheme.
Communicating with scheme members will be a priority and TPR will continue to monitor the existing BHS schemes to ensure members are kept up to date on progress.
The trustees will keep members updated, and, in due course, a helpline will be launched so that members can discuss their options with an independent financial adviser.
Last November, TPR issued Warning Notices to several targets outlining how it planned to instigate regulatory action as a result of its anti-avoidance investigation.
Nicola Parish, Executive Director of Front Line Regulation, said: “We are confident that the agreement we have reached with Sir Philip represents a good outcome for current and future BHS pensioners, and, as such, our regulatory action will now cease.
“In reaching such a decision, we have to balance the outcome of any settlement against what we might achieve by pursuing anti-avoidance action, the risk of a prolonged period of legal challenge in the courts, and the delay and uncertainty that would bring to members.”
TPR’s anti-avoidance enforcement action against Sir Philip Green, Taveta Investments Limited, Taveta Investments (No. 2) Limited, will now cease. Enforcement action continues in respect of Dominic Chappell and Retail Acquisitions Limited.
- The benefits that members will receive under the new scheme will be above PPF levels, and, on average, are closer to the original BHS schemes than to PPF compensation.
- The main reasons why members benefits are above PPF compensation are that:
- Starting pension (on transfer to the new pension scheme) will be the same as in the original BHS schemes.
- Those under 60 will therefore not be subject to 10% reduction in their starting pension 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. This compares to nil increases for pre-97 benefits provided within the PPF.
- 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.
- For more information see our quick guide to the BHS pension settlement (PDF, 93kb, 3 pages).
- TPR is the regulator of work-based pension schemes in the UK. Our statutory objectives are: to protect members’ benefits; to reduce the risk of calls on the Pension Protection Fund (PPF); to promote, and to improve understanding of, the good administration of work-based pension schemes; to maximise employer compliance with automatic enrolment duties; and to minimise any adverse impact on the sustainable growth of an employer (in relation to the exercise of the regulator’s functions under Part 3 of the Pensions Act 2004 only).