June 30
TPR publishes details of BHS investigation

Earlier this week the Pensions Regulator published a report setting out details regarding its intervention in the BHS case, called a "Section 89" report. It is fairly common for the Pensions Regulator to publish reports of this nature, particularly to highlight and justify actions taken. However, the BHS report ​is considerably longer than usual, probably reflecting the high level of public interest in this case.

Much of the information contained in the 45 page report was already in the public domain. This has led Frank Field, who was the Chair of the Work and Pensions Select Committee when it carried out its investigations into BHS during the last Parliament, to say:

"What this watered-down version of events doesn't let us do is assess the strength of the Pensions Regulator's case against Sir Philip, and how well they played that hand. [...] Of course, the regulator and Sir Philip have a shared interest in keeping the details quiet. But that cannot be the public interest."

However, while the report could have been more detailed, I still think that there are some points of interest.

A brief description of the three triennial valuations completed by the BHS schemes under the scheme specific funding regimes is included. These were carried out in 2006, 2009 and 2012. It seems that in all cases the Pensions Regulator raised a number of queries, particularly around assumptions used and what the trustees had done to assess the employer covenant. However, they chose not to use their scheme funding powers, instead just highlighting issues they would like the trustees to consider at the next valuation. Given that similar concerns were raised in relation to all three valuations, it could be argued that the Pensions Regulator's recommendations had very little impact on the approach followed at future valuations.

When the Pensions Regulator investigates a completed valuation, in my experience it is common for the investigation to conclude with the Pensions Regulator making recommendations for the next valuation. This has led to some suggestions that the Pensions Regulator has very little impact on valuations, and is fairly weak in this area. However, over the last few months the Pensions Regulator has suggested that they are going to take a stronger approach to valuations in future, intervening in more cases, and this point is also made in their BHS report.

The report also provides some detail on why the Pensions Regulator considered it reasonable to seek a Contribution Notice against Sir Philip Green. One of the arguments put forward is that historically Sir Philip Green had had involvement with the pension schemes, taking an active interest in the funding position of both of the BHS pension schemes, and had oversight of the negotiations regarding contributions.

Given that the BHS schemes represented a material financial obligation of BHS, in my view it would have been very strange for senior management not to have an interest in these matters. As settlement was reached before the Determinations Panel assessed the Pensions Regulator's case, we will not know if this would have been considered a reasonable argument for imposing a Contribution Notice. However, if this does represent grounds for a Contribution Notice being issued, it would mean that (theoretically) a large number of finance directors of companies with a DB scheme could be at risk of receiving a Contribution Notice.

The report briefly mentions the various discussions which took place between the employer, the trustees and the Pensions Regulator regarding "Project Thor", prior to the sale of BHS to Retail Acquisitions Limited. The Pensions Regulator suggests that a key difficulty to agreeing to any deal was that it was very difficult to get the relevant analysis and data from BHS to allow them to assess the merits of the pensions restructuring, as well as the Pensions Regulator not being convinced that insolvency was inevitable.

Project Thor would have involved a new scheme being established, providing lower benefits than originally promised through the schemes, but more than PPF compensation. The new scheme would have offered the same headline benefits as the original schemes, but with lower future increases. There would also have been an option for members to take a winding up lump sum instead of transferring to the new scheme, if their benefits were worth less than £18,000. In all these aspects Project Thor was very similar to the final settlement. However, the key point which is missing from the Pensions Regulator's report is whether the pension increases which would have been provided in the new schemes under Project Thor would have been higher or lower than the increase which is now to be provided. It is this key detail which would reveal whether the Pensions Regulator's refusal to sanction Project Thor and their subsequent investigation led to a better outcome for members.

Finally, at the end of the report the Pensions Regulator highlights some areas where it intends to do things differently in future. Perhaps in light of criticism about their slow response in the BHS case, they state that they will take a more proactive approach. However, to do so the Pensions Regulator will require more resources, and it has recently been announced that the Pensions Regulator has been successful in securing an extra £3.5m of funding from the DWP, allowing them to increase their headcount by 10%.

In most cases the publication of the Pensions Regulator's Section 89 report draws a line under an investigation. However, given that Frank Field does not seem to be satisfied with the content of the report, and since being re-elected as an MP he has pledged to "bring the BHS saga to a full conclusion", I suspect there could still be more to come...

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