Arcadia agrees shorter recovery plans as Green feels pressure

Triennial valuations of the Arcadia Group Pension Scheme and Arcadia Group Senior Executive Scheme revealed funding levels of 55 per cent and 59 per cent respectively, creating a combined deficit of £565m.

We might like the top company or top investor in a group to be responsible for the pension scheme, but in a lot of cases legally they are not

Faith Dickson, Sackers

Arcadia, which is chaired by Sir Philip Green, will now pay off the sum in 10 years, down from a previous schedule of 13 years and nine months, and significantly shorter than the 23 years agreed for the funding of the BHS pension scheme. Yearly contributions jumped from £24.3m to more than £50m.

The main scheme, which manages £474.6m in assets, has also decided to appoint an independent trustee to its board. The £241.5m scheme for executives already has two professionals on its board.

Details of the agreement were published on Sunday by the Work and Pensions Committee. Chair Frank Field welcomed Green’s commitment to funding the schemes, saying in a statement that it was “a credible plan for tackling a giant deficit and great news for Arcadia pensioners who must have been concerned”.

The power of PR

“We're seeing how the whole pensions regulatory system can have real teeth and make things happen,” said Darren Redmayne, chief executive of Lincoln Pensions.

Employers seem to be realising that simply funding their pension deficits is far easier than “an incredibly difficult and protracted regulatory investigation and interventions”, he said.

Redmayne predicted that either the Pensions Regulator or the select committee would soon find another target on which to place similar pressure, owing to recent trends in funding strategies.

“What’s happened over the last several years is that deficits have got larger, contributions have got smaller, particularly relative to dividends, and recovery plans have got longer,” he said.

Redmayne suggested that this meant schemes are exposed to more covenant risk than in recent years.

But while others agreed that Green’s story would refocus the minds of executives on their funding obligations, they also argued that Field’s comparison between BHS and Arcadia was an erroneous one.

“There just isn’t a free flow of assets around the different businesses in corporate groups. We might like the top company or top investor in a group to be responsible for the pension scheme, but in a lot of cases legally they are not, and separate businesses aren’t obliged to prop each other up,” said Faith Dickson, partner at pensions law firm Sackers.

She said that introducing greater flexibility around liability management, rather than an inefficient system that relies on “trial by media”, might better encourage employers to stand behind their schemes.

An unjust vilification?

Indeed the recovery plans of the Arcadia schemes have not shrunk that considerably, with the final payment date just nine months earlier than that set three years ago.

“The big indication [of the power of negative PR] is the fact that [Green] put his hands in his pockets so deep with the BHS settlement,” said Hugh Nolan, director at investment consultancy Spence & Partners and president of the Society of Pension Professionals.

He said that Green’s particular place in the public eye meant it was unlikely the situation would be replicated, and that the retail magnate had been treated unfairly.

“BHS didn’t pay a single dividend since the Pensions Regulator was in force,” he said.

Nolan argued that the industry had failed to acknowledge the value of the Pension Protection Fund as a lifeboat when businesses like BHS fail. “Even at PPF levels a DB scheme is still a phenomenal benefit,” he said.

He welcomed any move to appoint professional trustees, but warned that the presence of a professional on the BHS trustee board, as with many other schemes, was not enough to foresee the damage done to funding levels by favouring equities over bonds through the financial crisis.