The Pensions Regulator has announced that it has reached a £363m cash settlement with Sir Philip Green on the two BHS pension schemes. Under the settlement, members will have three options:

  • transfer to a new separate pension scheme (overseen by three professional independent trustees);
  • opt to take a lump sum if they have a small pension pot of up to £18,000;
  • remain with their current scheme, currently in the Pension Protection Fund (PPF) assessment period, and receive at least PPF benefit levels.

The benefits that members will receive under the new scheme will be above PPF levels. The starting pension will be the same as in the original BHS schemes – those under 60 will not be subject to the 10% reduction in their starting pension that applies to members in the PPF and members will not be subject to the PPF compensation cap.

As a result of the settlement, the Regulator's anti-avoidance enforcement action against Sir Philip and two of the companies involved in the sale of BHS will cease. Enforcement action continues in against the buyers of BHS, however.

The Regulator says in a statement that it balanced the outcome it achieved against the uncertainty of the support that might have been achieved for the schemes by pursuing the anti-avoidance investigation and the risk of a prolonged period of legal challenge in the courts.

Comments & Actions

  • Following the grilling of all parties (including the Regulator) from the Work and Pensions Select Committee last year, the Regulator was under some pressure to achieve a significant financial settlement. Whilst the amount recovered is less than the PPF deficit (approximately £570m), the settlement is a very significant amount of money, and considerably more than Sir Philip Green was originally offering. We expect the Regulator will be pleased with the result (and the generally positive reception it has received).
  • The case is also interesting in that it raises the question whether the publicity and bad press were more significant in achieving a deal than the actual risks of the Regulator successfully being able to recover monies under a financial support direction/contribution notice.
  • The Work and Pensions Select Committee had raised the issue of whether it would be more effective if the Regulator were to have powers in certain circumstances to act proactively to prevent some corporate activities, rather than having to rely on employers making voluntary clearance applications and/or the Regulator's retrospective anti-avoidance powers. The Government's response in the February Green Paper was cautious, warning that very careful consideration would have to be given to the potential impact on corporate transactions and the rescue culture; and that the introduction of compulsory clearance even in the most limited of circumstances could increase the risks of schemes falling into the PPF.
  • Another idea of the Committee's is to give the Regulator the power to issue a significant fine (in addition to pursuing the employer for support) if the corporate activity was shown to have been detrimental without appropriate mitigation. Again, the Green Paper is lukewarm, commenting that this could lead to the Regulator being overwhelmed with clearance applications and/or delay or halt corporate activity.