Weekly roundup: It’s not easy being Green

Arcadia scheme members may have genuine reasons to be cheerful if the talks between The Pension SuperFund and scheme trustees end up saving them from benefit cuts in the PPF.

This week also saw pensions minister Guy Opperman seemingly follow through with a promise to give small schemes greater engagement powers; and the environmental, social and governance bandwagon was firmly jumped on — again. 

We 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

Luke Webster, The Pension SuperFund

Et in Arcadia ego

Philip Green’s long-suffering Arcadia Group plunged into administration on Monday, and by Tuesday morning Debenhams had been dragged down with it, in part because Arcadia was a leading concessionaire in Debenhams stores. 

The collapse of both retailers led to fears their pension schemes would end up in the PPF, with some of the 10,000 members of Arcadia’s schemes in particular facing a potential 10 per cent cut to their benefits.

For Debenhams, this might not have come as an equivalent shock. Its two defined benefit schemes entered PPF assessment early last year. 

But the prospect of the lifeboat being burdened with the sizeable deficit of the Arcadia schemes, reported to be £350m, was an unwelcome one. It would require the diminishment of members’ benefits, and this led to calls for Sir Philip to get off the superyacht he was snapped on last week and do something about it.

By Wednesday it was being reported that Tina Green, Sir Philip’s wife, was bringing forward her final £50m contribution to the schemes. Originally due in September 2021, this is now expected within the next few days.

Should the Arcadia deficit be sufficiently reduced by Lady Green’s benefaction, it could leave the way open to a new solution.

SuperFund returns

On Thursday, it was reportedthat Arcadia trustees were in talks with representatives from TPSF, supposedly with a view to the consolidator stepping in to take the schemes out of the hands of the PPF, thereby securing member benefits in full.

The move by TPSF ought not have come as much of a surprise. Work and Pensions Committee chair Stephen Timms told Pensions Expert he had no foreknowledge of it when he asked, in his letter to TPR chief executive Charles Counsell on Monday about Arcadia, for reassurances about the robustness of the regulator’s superfunds guidance.

But Mr Timms hardly needed a crystal ball, since TPSF has not been coy about its interest in the Arcadia schemes. Indeed, it had declared as early as June last year that, pending a sufficient improvement in the deficit and funding positions of the Arcadia schemes, it would very much enjoy the chance to take them on.

Following the approval of the company voluntary arrangements last year that established Lady Green’s payment plan, as well as a contribution schedule from Arcadia itself, TPSF chief executive Luke Webster said: “We 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.”

It will be fine…

While in the proximity of the PPF, the lifeboat’s Purple Book was published on Wednesday and features an updated — and increased — risk assessment on future claims.

The new worst-case scenario is up £2.5bn from last year’s figure, standing now at £25bn by 2030.

Everyone knows that it is part of a risk assessment to consider doomsday scenarios, even if the probability of these happening may be as similar as being struck by a lightning bolt.

The PPF’s median outcome would see claims reach a much more modest £14.4bn by 2030, albeit this is still an increase over last year’s estimate of £12.7bn.

In a webinar hosted by Pensions Expert on Wednesday, PPF chief finance officer and chief actuary Lisa McCrory said the lifeboat’s modelling includes an expectation that there will “be periods of time when we see higher claims”.

“That has happened in the past; we have had periods of high claims before and you would expect it to be cyclical with the economic cycle,” she said.

“What is more difficult to tell in advance is what size those claims are going to be when they arrive, which is why we have our modelling so we can understand the range of outcomes and what actions we would need to take to ensure our sustainability.”

Engage!

Given the government has recently spent its time setting minimum thresholds for Scotch egg consumption that must be passed if a pint is to be consumed in a pub, and trying to dictate what physical contact individuals can have with their relatives this Christmas, it might come as a surprise that a minister suggested that human beings should be empowered to make choices of their own.

Yet that is what the Department for Work and Pensions did when on Tuesday it launched a new working group to look at ways to give investors in pooled-fund products more influence over voting shares and securities held on their behalf.

Mr Opperman had said in November that he was keen on empowering small schemes in particular to engage on sustainability issues. 

Because small schemes often end up in pooled funds, they often lack the same clout and influence as their larger counterparts, since with things like intermediated securities, it tends to be asset managers rather than asset owners who are named on legal documents.

The DWP’s working group aims to address the legal limitations this places on schemes’ ability to engage with companies.

Mr Opperman said: “I firmly believe the days of trustees leaving everything to asset managers without scrutiny must come to an end. We need to do more to improve pension schemes’ and asset managers’ stewardship and engagement with companies to ensure they are fit for purpose in the 21st century.”

ESGee whizz, gang

Finally, yet more ESG innovations: Phoenix Group, the UK’s largest long-term savings and retirement business, announced a new defined contribution default solution incorporating ESG standards, while Legal & General has pledged itself to the Paris agreement’s net-zero targets.

The Phoenix solution takes the form of its new Standard Life Sustainable Multi-Asset Fund, a passive default strategy using ESG components for key asset classes that will officially launch this month.

“ESG componentry” will make up 64 per cent of the asset allocation at launch, with the aim being to boost that to more than 90 per cent in 2021.

L&G’s move, meanwhile, takes the form of a new ESG policy from L&G Retirement, the company’s annuity business, aimed at cutting the carbon emissions intensity of its £80.7bn annuity book by 18.5 per cent by 2025 and 50 per cent by 2030.

The policy forms part of the company’s drive to reach net-zero by 2050, and will see investment focused “in assets that create real jobs, improve infrastructure and tackle the biggest issues of our time”, according to the policy document.

Now, if only somebody could standardise ESG measurements so we do not end up comparing apples with spaceships, that would be dandy.