Arcadia, Debenhams the first high street dominoes to fall

Debenhams, which has two defined benefit schemes, was left facing liquidation after JD Sports pulled out of talks about a takeover bid on Tuesday, a decision precipitated by Arcadia’s entering administration since the group is a leading concessionaire in Debenhams’ stores, the Financial Times reported.

Pension scheme members can be assured of our ongoing support and protection at this challenging time

Pension Protection Fund

The retailer’s struggles have been known for some time, with the high street chain seeing two company voluntary arrangements approved in May last year that featured a £200m refinancing package for its pension schemes.

Debenhams was placed in “light touch” administration in April 2019, which it seemed to have survived, but returned to it in April this year following the closure of its 124 stores due to the Covid-inspired lockdown.

Sir Philip is facing calls to step in to rescue Arcadia’s pension schemes as, with their reported £350m deficit and the company’s entry into administration on Monday, falling into the PPF is a real prospect. This could see benefits for many of the schemes’ 10,000 members cut by 10 per cent.

PPF stands ready

A PPF spokesperson told Pensions Expert that the Debenhams winding up order did not make any material difference to the schemes’ situation.

“Debenhams’ pension schemes entered PPF assessment in April 2019 following the announcement of the CVA. Today’s winding down order does not change this situation; the schemes remain in PPF assessment and members will continue to be paid. Pension scheme members can be assured of our ongoing support and protection at this challenging time,” the spokesperson said.

Regarding Arcadia, the spokesperson said: “Insolvency events are a concerning time for employees and scheme members and we want to assure the members of Arcadia’s DB 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.”

The spokesperson added that they could not yet be drawn on what impact the two retailers’ pension schemes would have on PPF funding should they fall into the lifeboat, as their funding position is not yet known. Similarly, they could not comment on whether the affected schemes would be eligible for alternatives like an insurance buyout, as it is the purpose of the PPF assessment period to determine these figures.

A spokesperson for the Arcadia pension schemes was not able to furnish updated deficit figures for the schemes, but told Pensions Expert: “The trustees are in ongoing discussions with Arcadia and its administrators and continue to work with the Pensions Regulator and the Pension Protection Fund to fully understand future plans for the business and to ensure that members’ interests continue to be protected.

“Members can be assured that, in the meantime, all pension payments will continue to be paid on their normal, due dates,” the spokesperson continued. 

“We urge members to continue checking the pensions website as this is the quickest way to receive updates from the trustees, while the member helpline is also available.”

Superfunds to step in?

In a letter sent on Monday by Work and Pensions Committee chair Stephen Timms to Charles Counsell, TPR chief executive, Mr Timms sought reassurance on several matters relating to the Arcadia pension schemes.

One such area concerned the robustness of the regulator’s recently published guidance on superfunds, with Mr Timms asking: “What reassurances are you able to give to scheme members should the strength of that guidance be tested in the coming weeks?”

TPR is expected to reply to the Labour MP in due course. Mr Timms himself told Pensions Expert he was not asking based on any foreknowledge of a superfund transaction, but rather because of a public statement put out in June last year by Luke Webster, chief executive of The Pension SuperFund, in which Mr Webster laid out how the planned payments into the Arcadia schemes by the sponsor and by Lady Green “start to bring Arcadia into the scope of The Pension SuperFund”.

Mr Webster wrote at the time that TPSF would “stand by to assist the Arcadia pension scheme trustees to deliver scheme members into a safe harbour where we believe there could be a better outcome for all”.

Adam Davis, managing director at K3 Advisory, told Pensions Expert he would be interested to see whether now is the time for the superfund market to step in.

“Any obligation of the Green family to fill any pensions deficit appears to be limited to a moral one. In any case with an insolvent employer, the purpose of such a contribution would be to try and secure members’ pensions in full with an insurance company through the purchase of a bulk annuity policy,” he said.

Mr Davis explained that, even if no contribution is made, “the scheme trustees will assess whether, with any recoveries from the insolvency proceedings, they can secure a higher level of benefits for members than the PPF would provide.

“I’m keen to see whether the trustees will consider the new superfund market, which has the potential to provide members with higher benefits than the insurance route,” he said.

Communication is key

Caroline Hopper, senior writer and workshop leader at communications specialists Quietroom, told Pensions Expert it will be vital for trustees, sponsors and the PPF to communicate quickly and efficiently with members to assuage their concerns, and avoid the possibility of misinformation being spread.

“The most important thing is to not leave an empty void,” she explained. 

“People are worrying about the future of their jobs and their pensions, so they’re looking anywhere and everywhere for information. Get in touch with your members, even if you don’t know what’s going to happen yet. Tell them that you’ll be in touch as soon as you do know what’s going to happen to their pensions.

“If you leave a void, others will fill it — with misinformation, and even scams,” Ms Hopper warned.