March 24
Is the BHS settlement fair?

​Last month an agreement was reached on BHS between Sir Philip Green and the Pensions Regulator. Details of the settlement are in a previous blog. This will allow members to transfer to a new pension scheme with benefits which are better than PPF compensation, but less valuable than the benefits they were originally promised in the BHS schemes. But is the new benefit structure fair to all members?

The new scheme will provide benefits which are 88% of the value of full benefits, on average. In response to a question raised by Frank Field, the Pensions Regulator has provided the graph below showing the distribution around this average.

TPR graph 1.png

Most members (54%) will get between 85% and 90% of benefits, although 8% will get between 80% and 85% (with a handful getting between 75% and 80%) and another 8% will get between 95% and 100% of full benefits.

Frank Field also asked the Pensions Regulator for data on how the value of benefits in the new scheme compares to the compensation members would have received from the PPF. In response to this question, the Pensions Regulator has provided the graph below.

TPR graph 2.png

The value of PPF compensation would have been 69% of the value of full benefits, on average. As the new scheme is providing benefits which are 88% of the value of full benefits, on average, the new scheme is providing benefits which are 27% higher than the value of PPF compensation. The graph above therefore shows the distribution of outcomes for members relative to the average of 127%.
The first point to note is that there is a far wider distribution on this second graph than there was on the first. In particular, there are some members who are big winners when comparing their new benefits to the value of PPF compensation. 12% of members will get new benefits which are worth at least 50% more than PPF compensation. The last bar on the right also shows that some members will receive benefits worth more than 80% more than PPF compensation.

Based on this data Frank Field has suggested that "Sir Philip prioritised the benefits of those scheme members who worked most closely with him." He has asked a follow up question to the Pensions Regulator, requesting more detail on the number of members who are in this "180%+" bucket, and the extent to which some of these members are getting more than 180% of the value of PPF compensation.

When Frank Field receives this response, I expect he may have some strong words to say about whether the new benefit structure is fair.

The reason that the distribution is wider on the second graph is that the benefits being provided in the new scheme have been structured on a "full benefits minus" basis, rather than a "PPF compensation plus" basis. In effect the benefit structure therefore ignores the shape of PPF compensation and takes no account of the extent to which different members would have gained or lost out from entering the PPF. This means the biggest winners from the new scheme are the members who would have lost the most from entering the PPF, particularly the 16 members who would have been subject to the PPF compensation cap.

This may lead to a wider discussion about the fairness of the structure of PPF compensation. On this point Frank Field has stated:

"The settlement entirely disregards the PPF compensation cap. The Government's rationale for the cap includes that "it encourages high earners, who may have an influence over their scheme, to try to ensure that the scheme does not enter the PPF"."

While settlement may have been reached, it appears that the questions being raised by Frank Field will ensure that this story doesn't go away just yet. 

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