Sir Philip’s Arcadia Group, which includes high street brands Topshop, Burton and Dorothy Perkins, appointed administrators from Deloitte last night (November 30).
The administration raised concerns for the 10,000 members of Arcadia's pension scheme which will now be assessed for entry into the Pension Protection Fund (PPF).
But as the pension scheme has an estimated deficit of £350m, there is a risk that members who have not reached the scheme‘s normal retirement age will face a 10 per cent cut to their pensions.
Both the industry and MPs have called on Sir Philip to plug the shortfall.
In addition, Stephen Timms, chairman of the work and pensions committee has written to the Pensions Regulator (TPR) to stress the importance of “securing the interests of pension scheme members”.
The letter calls for clarity on the status of the £385m package previously agreed by TPR, Arcadia and the group’s owner Lady Green and also asks what is being done to protect Arcadia scheme members from pension scammers.
Mr Timms said: “There is unquestionably a moral case for the Green family to do the right thing and guarantee Arcadia’s hardworking staff what is rightfully theirs, whatever happens this Christmas.
“But the Pensions Regulator must also ensure that it is doing everything in its power to fight the corner of the pension scheme members.”
He added: “This is a crucial moment for the regulator to show that it has learned the lessons of previous corporate collapses, such as those of BHS and British Steel.
“While staff will be worried about possible job losses, the Pensions Regulator must take firm and decisive action to protect them from fraudsters.”
Kate Smith, head of pensions at Aegon, said this event could test the Pension Schemes Bill which gives new powers to TPR to tackle issues such as this.
She said: “Fierce negotiations still have to take place between the Arcadia Group, and the Pensions Regulator, with calls to Sir Philip Green to plug the £350m funding gap.
“This could be the first real test of the Pensions Bill which, once it has been given Royal Assent, will give the Pensions Regulator new powers to intervene, if it’s not too late.”
A PPF spokesperson said: “Insolvency events are a concerning time for employees and schemes members and we want to assure the members of Arcadia’s defined benefit pension schemes of our ongoing protection.
"The robust negotiations at the time of the CVA last year have ensured that both schemes are now in a better financial position.”
Hope for savers
Tom Selby, senior analyst at AJ Bell, said: “The Pension Protection Fund acts as a lifeboat for members of defined benefit schemes whose sponsor fails, paying at least 90 per cent of the value of pensions built up.
“In some cases, members would still get back 100 per cent of their expected DB pension.”
Dominic Murray, independent financial adviser at Cameron James, agreed there was a “silver lining” in this case.
Mr Murray said: “It is, relatively, nice to see that this time around the news is about a 10% reduction in pension payouts and not catastrophic reductions as seen with the BHS Scandal.
“The setting up of the Pension Protection Fund really has been a triumph for the UK pension industry, especially in regards to consumer protection.
“However, of course, these days most employment-based schemes are defined contribution rather than defined benefit.
"With these schemes, the investment risk lies with the employee rather than the employer, so making sure that the pension provider and the custodian of their pension assets are secure is of the utmost importance.”
Ros Altmann said the situation with Arcadia was not directly comparable with BHS.
BHS went into administration in April 2016, a year after businessman Dominic Chappell bought it from Sir Philip for £1, leaving the pension schemes in jeopardy. In 2017 a £363m settlement with Sir Philip was reached to fund a new independent pension scheme for 19,000 former BHS workers and in January, Chappell was ordered to pay £9.5m into the schemes.
Under the terms of an agreement reached in 2019, Arcadia agreed to provide security for the schemes to the value of £210m — up from an initial offer of £185m — which included an additional £25m agreed with TPR.
Tina Green, Sir Philip’s wife, agreed to provide a voluntary contribution of £75m over three years to help close the funding deficit on the pension schemes, plus an additional £25m, making it a total of £100m.
FTAdviser reported in March this year that Lady Green’s payments would continue, while Arcadia’s will be deferred. In practice, instead of receiving £50m, the schemes will see a contribution of £25m.
Ms Altmann said: "In [the BHS] situation, the Pensions Regulator had concerns about the lack of funding for the BHS pension scheme over many years and the fact that the business had been offloaded without plans in place to fix the deficit of over half a billion pounds.
"In the case of Arcadia, however, the owners have reached an agreed schedule of deficit repair contributions, that was to see £100m paid in over three years, half of which has already been paid. Even if a further £50m is paid next year, as per the guarantee arrangement, the scheme would still not escape the Pension Protection Fund."
amy.austin@ft.com
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