The Pensions Regulator (TPR) has allowed the trustees of the Littlewoods Pension Scheme to modify rules and free up surplus funds for payment to the scheme’s sponsoring employer.
It is only the second time the regulator has granted a trustee board a “modification order” to amend scheme rules and avoid a surplus becoming “trapped” when the trustees are winding up the pension scheme.
Anna Rogers, senior partner at Arc Pensions Law, which advised the Littlewoods trustees, said: “We are pleased to have established that this is an option for schemes with the right fact pattern.
“It’s been a slow process, and TPR’s requirements are stringent, but the precedent will be helpful to other older schemes with a surplus that is trapped even on winding up.”
Anna Rogers, Arc Pensions Law
“It’s been a slow process, and TPR’s requirements are stringent, but the precedent will be helpful to other older schemes with a surplus that is trapped even on winding up.”
The Littlewoods Pension Scheme has been preparing for wind-up since 2021, after it secured a final £930m buy-in with Rothesay in 2020.
Reaching this position involved “smart investment decisions”, according to Arc Pensions Law, as well as £32.5m in deficit reduction contributions from the sponsoring employer, the retail chain Littlewoods.
Colin Thwaite, chair of the Littlewoods Pensions Scheme trustee board, said: “Littlewoods has provided generous financial support to our scheme over recent years, and I’m delighted that we have been able to secure the pensions for all our members in full. We are grateful to TPR for enabling us to pay the unused assets back to the sponsor so that we can now finish winding the scheme up.
“Guaranteeing our pension obligations has been our goal for a long time and it is a testament to the quality of our advisers, and the longstanding support and collaboration with sponsor and its shareholders, that we have achieved it.”
How the surplus became ‘trapped’
The buy-ins were converted to a buyout in 2023, with “the vast majority” of pension scheme members and dependants receiving individual annuities, according to TPR’s determination notice.
Trustees then used scheme funds to pay other members “winding-up lump sums”, and also secured benefit enhancements for members totalling approximately £15m.
However, an additional surplus of between £10m and £12m was still in the pension scheme, according to TPR, with no power within the scheme rules to allow the remaining funds to be paid to the employer. Arc estimated the surplus to be £16m.
Littlewoods - now owned by The Very Group - declined to allow the trustees to distribute the remaining funds to members.
Following TPR’s decision, the trustees are now in the process of notifying members of the decision to return the remaining surplus to the employer - a process that Arc expects to take “a minimum of six months”.
Last week, the government set out how it plans to lift restrictions on surplus release.
Through the Pension Schemes Bill, the government will introduce a “statutory resolution power” for trustees to permit modifications to scheme rules.
Pension schemes that are in surplus on a low dependency basis, as defined by TPR’s DB Funding Code, will be permitted to access surplus. Any surplus released will still be subject to a 25% tax.
