BHS: Key players castigated as MPs publish their findings
In a hard-hitting report published on 25 July 2016, the MPs investigating the demise of BHS have found that Sir Philip Green, Dominic Chappell and their “respective directors, advisers and hangers-on” are all culpable for having “got rich or richer off the back of BHS”.
Dominic Chappell was “out of his depth” and was “over-optimistic to the point of arrogance” whilst the MPs say that there is “little evidence to support the reputation for retail business acumen for which [Sir Philip Green] received his knighthood”.
The 60-page report examines how the Green family became “incredibly wealthy”, the growth of BHS’s pension deficit and the “repeated failure of Sir Philip Green and his directors to take opportunities to resolve it”. It also covers how BHS was sold to a “manifestly unsuitable purchaser” in Dominic Chappell, and his company, Retail Acquisitions Limited (RAL) “who came to the deal with no new money or sustainable means of raising any” and the role of advisers in the sale process. The corporate governance in the Taveta group is examined in which the MPs find “a paucity of challenge and oversight which allowed Sir Philip to run it as a family empire” and finally, the MPs examine the “shambolic RAL ownership of BHS during which Dominic Chappell and his associates used BHS for personal gain as it crumbled around them”.
This, the MPs conclude, is the “unacceptable face of capitalism”, demonstrating that the economic system can be worked “to the advantage of directors, financiers and advisers at the expense of employees and the wider public interest”.
Comment
The publication of the report has attracted wall-to-wall coverage and clearly is not the end of the story. We have published a News Alert that examines the role that BHS’s two defined benefit pension schemes played as the events unfolded and which assesses whether there are any wider lessons that can be learned from a pensions regulatory perspective.
LTA protections – online registration service now live
HMRC has launched its new online service for individuals with large pension savings who want to obtain protections to help reduce lifetime allowance charges that might arise following recent reductions in the lifetime allowance (see Pensions Bulletin 2016/14). The service covers the two new forms of protection – Fixed Protection 2016 (FP2016) and Individual Protection 2016 (IP2016). It also replaces the previous process, for those now applying for Individual Protection 2014 (IP2014).
Individuals can access the online service through the updated “protect your lifetime allowance” guide and will get a protection Reference Number (not a certificate).
The interim process (see Pensions Bulletin 2016/20) available from 6 April for individuals who urgently needed FP2016 or IP2016 has now closed. Those who used it should now apply for an online registration using the new system and provide their administrator with that replacement number.
HMRC has also published a new plain English guide for members on valuing their pensions for IP2014 and IP2016 and an update to the guide for pension administrators on checking a member’s protection status.
Further details are set out in HMRC Newsletter 80.
Newsletter 80 also provides the quarterly release of official statistics on flexible payments from pensions and a request for those pension schemes that use relief at source and have not received a notice to submit their annual return of individual information for 2015 to 2016 to contact HMRC.
Comment
HMRC has clearly put a lot of resource into trying to create a user-friendly system and to put lifetime allowance and protections into plain English – in recognition that this issue impacts many more individuals than before. Some of the online guidance to help individuals complete the process is not as clear as it might be – hopefully it will improve as feedback is provided. And in any case, the complexity of the pensions tax regime gives plenty of scope for individuals to make errors.
Pension managers should remember that schemes must provide an individual with a quote of their “IP2016 value” of benefits in the scheme, if requested.
HMRC expects pension schemes to check an individual’s protection status before putting benefits into payment. Individuals obtaining protection now will receive a Scheme Administrator reference number – for pensions administrators to use when HMRC releases a complementary “on line administrator look up service” later this year (see Pensions Bulletin 2016/20). Until then schemes may have to rely on members logging into the HMRC website themselves, printing out the page with their two key reference numbers and giving personal assurance that their protection remains valid.
PPF reports strong position as at 31 March 2016
In what have been more testing times than last year, the Pension Protection Fund has nevertheless increased its surplus (up £0.5bn to £4.1bn) and its funding ratio (from 115.1% to 116.3%) whilst making a significant improvement in the likelihood of it being financially self-sufficient by 2030 (up 5% to 93%). These are the headlines taken from the PPF’s 2015/16 Annual Report and Accounts published on 21 July covering the year to 31 March 2016.
They assume that the PPF will take on the two BHS schemes which were in assessment as the year drew to a close. Separately, the PPF has made provision for the British Steel Pension Scheme on which it says that “we believe that we have sufficient reserves should this scheme come to us during the coming year”.
The improvement in the funding position comes despite a significant increase in new claims (£476m compared to £322m in 2014/15) and a much poorer (though still positive) investment performance. The improvement appears to have been driven by a number of factors as detailed in the actuarial report.
The improvement in the chances of achieving self-sufficiency has been driven primarily by changes in the modelling that the PPF uses.
Comment
The PPF is thankfully in rude financial health, but knows that it cannot be complacent. In a report that is replete with an assessment of risks and how it seeks to control them, there is one above all about which it acknowledges there is little it can do – poorly funded schemes. It estimates that at the end of March 2016 the combined deficit of the DB schemes that it protects is some £302bn – a figure that has got worse during the 2015/16 year and which clearly worries them. And indeed, by the end of June, in the immediate aftermath of the EU Referendum, the deficit had risen to £384bn.
But this notwithstanding, there is no doubt that the PPF has, in its relatively short life, been a success story. It has taken on no less than 832 DB schemes whose sponsors have failed and is paying compensation or has undertaken to for over 225,000 people. Its presence in the pensions landscape has delivered more social justice than what would have transpired had our legislators baulked at creating it.
The Regulator starts the discussion on “21st Century Trusteeship”
After some months of mutterings from Brighton that work was in train on what it takes to be an effective trustee in the current environment, the Regulator has put pen to paper in the form of a 26-page discussion paper.
Unsurprisingly, it finds that not all trustee boards are meeting the standards of governance and administration that it expects, or are finding it challenging to do so. It even goes so far as saying that it has come across some professional trustees “who are clearly unfit for the role”.
Over the next year the Regulator intends to focus on the issue of effective trusteeship through a more targeted communication and education strategy (in particular in relation to disengaged trustees and trustees of poor performing schemes), but in the meantime it invites comment on issues such as the following:
- Should there be barriers to entry for professional trustees? For example, should they be required to be qualified or registered by a professional body
- Should DB schemes be required to appoint a chair and report on compliance with governance standards
- How can trustees demonstrate they have the minimum level of competence required? For instance, should they hold relevant qualifications
- Would a CPD framework help trustees keep up to date
- What should be done with those schemes that are unwilling or unable to deliver good governance and member outcomes
The consultation closes on 9 September 2016.
Comment
This is clearly the beginning of the “discussion”. The Regulator says that it is not looking to impose new standards of governance or add to the burden on trustees, but it is clear, from the ideas that it is floating, that “educate and enable” can only go so far.
New money purchase code and compliance and enforcement policy now in force
The new version of the Pensions Regulator’s code of practice for occupational trust-based schemes providing money purchase benefits is now in force, having completed its passage through Parliament (see Pensions Bulletin 2016/19).
And, as promised, the Pensions Regulator has finalised the related guides, drafts of which were consulted on in April (see Pensions Bulletin 2016/15). The guides are very much as originally drafted, but with more examples and some additional guidance and clarification included in response to the consultation. The language used has also been modified in some places to make it clear that the guides are not intended to be prescriptive.
The Pensions Regulator has also produced a tool to help trustees assess their scheme against the standards in the code, so that they can identify areas requiring improvement.
Separately, the Regulator has published its updated compliance and enforcement policy for occupational schemes providing money purchase benefits on which it also consulted earlier this year (see Pensions Bulletin 2016/12). This document describes the Regulator’s expectations for compliance with legislation and how it will proceed to enforce the law. It is much as proposed for consultation, though the title has been updated to make it clear that the policy applies not only to pure DC schemes but also to DC provision in occupational pension schemes that provide other benefits.
Comment
The now in force code along with the related guides and the updated policy should form essential summer reading for all trustees of occupational schemes providing money purchase benefits.
This Pensions Bulletin does not constitute advice, nor should it be taken as an authoritative statement of the law. For further help, please contact David Everett at our London office or the partner who normally advises you.
