The Pensions Regulator has highlighted the lessons it has learnt from the BHS case in a recently published regulatory intervention report, as experts stress the need for more proactive engagement.
The report sets out the regulator’s actions in relation to the BHS Pension Scheme, detailing why it made certain decisions. It shows how, over the years, the regulator became increasingly engaged with the scheme, due to a rising number of concerns regarding issues such as the length of its recovery plan and the strength of the employer covenant.
Could have done better
The regulator said that “key areas where we recognise that we could have performed better are the timeliness of our engagement and the clarity of our communications”, with regard to scheme funding and valuations.
If the regulator had managed to exert more influence earlier on in the process, it may have been a happier outcome
Matthew Giles, Squire Patton Boggs
In terms of avoidance investigations, it said that “we will be smart in the use of our resources and technology, focused in our use of investigatory powers, and will obtain external expert assistance where appropriate”.
And when it comes to settlement offers, it said its main consideration is not simply the financial sum involved, but whether the proposal overall would secure good outcomes for members of schemes and the Pension Protection Fund, “and mean it would be inappropriate for us to continue our investigation and use of our powers”.
The report also reveals the regulator argued that “the main purpose of the sale was to postpone BHS’ insolvency to prevent a liability to the schemes falling due while it was part of the Taveta group of companies ultimately owned by the Green family, and/or that the effect of the sale was materially detrimental to the schemes”.
More guidance needed
Faith Dickson, partner at law firm Sackers, noted that the information in the report about the regulator’s thinking and how it has evolved, as well as how it will approach other cases, “is really useful”.
The regulator is “often very reluctant to give you too much information about what they will take into account in any particular situation”. But to improve the regulatory system, “you need to go into discussions with the regulator with your eyes open”, by knowing what the regulator is going to be looking for, Dickson said.
“I’d like to see them set more guidance. The more guidance they’re prepared to give, the better the system will operate,” she said.
Dickson added: “It would be nice to see a change in the political mindset to allow TPR to be more proactive about settling things, and giving approval to restructurings.”
Proactive engagement
Matthew Giles, partner at law firm Squire Patton Boggs, said the report shows that the regulator had been scrutinising valuations since approximately 2006. “There’s a good 10 years of engagement,” which “gradually ramped up” over time, he said.
However, it “didn’t really achieve the goal of trying to find a way of sustaining business and scheme”, he said.
While a deal was eventually struck in terms of preserving pensions, “by this stage the business is gone, the employees are redundant, and... if the regulator had managed to exert more influence earlier on in the process, it may have been a happier outcome”, Giles added.
He noted that although the report discusses how there will be more proactive engagement, “there’s nothing concrete in there on how they would prevent this scenario happening again”.
Richard Farr, managing director at covenant specialist Lincoln Pensions, said while it is a good report on the history of the BHS case, it cannot go into too much detail due to current legal constraints.
BHS deal welcomed but views split over DB framework
Sir Philip Green has agreed to contribute £363m to a new pension scheme for former employees of BHS, under a settlement arrangement that achieves better outcomes for members than entry into the Pension Protection Fund.
However, “the frustrations TPR had over the process are clearly explained in their response to the green paper”, he said.
He noted that, in its response, the regulator said it was evolving to be able to intervene faster, in a more focused way and more frequently.
It also said that it wants “to be able to have legally enforceable ‘comply or explain’ procedures” and compel parties to submit to an interview, as well as being able to request information on an ad hoc basis.
Tim Middleton, technical consultant at the Pensions Management Institute, said the report’s concluding section was particularly interesting, “about the extent to which this was a learning experience for them”.
It is clear the regulator sees this sort of investigation as something that’s going to be more common in future, he said.
