Defined Benefit  

MPs question Dixons Carphone over pension fund

MPs question Dixons Carphone over pension fund

A committee of MPs will write to Dixons Carphone about the deficit of its defined benefit (DB) scheme after the company's share price tumbled.

The retailer's share price dropped as much as 20 per cent last week, after it revealed it is expecting a £300m profit in 2018 - a drop from £382m the previous year.

The DB section of the Dixons Retail UK pension scheme saw its deficit increase from £472m in 2016 to £589m in 2017 - though it has since reduced to £492m at the end of October, largely as a result of changes in discount and inflation rate assumptions.

Frank Field, chairman of the Work and Pensions select committee, confirmed to FTAdviser he would be writing to the retailer, which was formed four years ago by the £3.8bn merger of Dixons Retail and the Carphone Warehouse Group.

He said: "We will be writing to the pensions trust at Dixons Carphone and will be asking them what they have been doing to tackle the deficit.

"Mergers don’t always result in the gains they hope for when two companies come together, and that is why I am concerned for the pensions side of this business."

Since its last actuarial valuation, in 2016, the company has been making annual contributions of £46m into its pension scheme.

Last week Dixons Carphone announced plans to close 92 stores, as gross margins are expected to be down.

A spokesperson at the retail company said: "Dixons Carphone can reassure the committee that our pension scheme is well funded with annual contributions of £46m.

"Revenues increased last year which underpins our robust balance sheet, falling net debt and strong cashflow."

Rosalind Connor, a partner at ARC Pensions Law, said it was a welcome change that DB pension liabilities of employers were now high profile when there are challenges to businesses.

She said: "For too long pension liabilities have gone without mention when there is any problem for a business, despite being a major creditor. 

"Frank Field and the Work and Pensions select committee has pushed pensions to the forefront of business activity, as shown by recent letters demanding pensions be protected to, amongst others, Dixons Carphone."

But Ms Connor warned that pension issues were complex, especially since liabilities are in a constant state of flux, relying on various assumptions about things such as future growth and mortality.

She added: "The accounting assessment of the liability is the only public figure and tells us almost nothing about the actual cost, or the changes in cost, of running the scheme. 

"In addition, it is not clear what exactly anyone might expect Dixons Carphone’s management to do about their pension scheme right now, except take the necessary steps to secure the future of the business, so that it can keep paying the reported £46m a year into the scheme – presumably the same steps it would take if it didn’t have a pension scheme to worry about."