Select committees: Philip Green has 'moral duty' to help fix BHS pension deficit

While the BHS pension saga has been going on for months, little concrete action has been taken to remedy the situation.

It is a characteristic of the current marketplace to address crisis after crisis on an ad hoc basis, moving from one disaster to the next

Tom McPhail, Hargreaves Lansdown

The report concluded that "Sir Philip Green, Dominic Chappell and their respective directors, advisers and hangers-on are all culpable".

It said Green “gave insufficient priority to the BHS pension scheme over an extended period”, and that he “owes it to the BHS pensioners to find a resolution urgently. This will undoubtedly require him to make a large financial contribution. He has a moral duty to act.”

Using markedly strong language, it went on to say: “We found little evidence to support the reputation for retail business acumen for which he received his knighthood.”

The report further condemned Dominic Chappell, who bought BHS from Philip Green, and the scheme’s financial advisers for passing on blame and responsibility, accusing Chappell of “[taking] generous fees” despite increasing awareness of the problems.

Moreover, the report stated that the regulator “at times, could have shown more urgency in engaging with BHS and the pension scheme trustees”, but acknowledged that some review of its interventional powers was needed.

Time to reflect

In a recent statement the regulator's chief executive Lesley Titcomb said: “We will reflect on the findings of this report and will engage fully with the next phase of the Work and Pensions Committee’s enquiries.”

In a letter to the Work and Pensions Committee on June 24, the regulator suggested improvements to the existing defined benefit legislative framework, including consolidating smaller schemes to make regulation simpler, and a more supervisory, as opposed to merely regulatory, role for the regulator.

'Hard cases make bad laws'

Steve Webb, director of policy at insurer Royal London, lauded the report for pointing out that under Green’s management, BHS was paying out almost double in dividends what it was earning in profits, and for condemning Green for deliberately trying to conceal the true state of the BHS pension problem from Chappell's Retail Acquisitions and its advisers.

He welcomed the committees’ tough stance on the parties involved in BHS’s downfall. “Green has kept saying that he’ll ‘sort this’, but it is time to put his money where his mouth is,” Webb said.

The report will also raise the issue of advisers, he said. “Many people were paid a lot of money, and the question is, 'What did they do for it?'”

He expressed concern, however, that although the regulator will look at whether there is a legal duty for Green to pay towards fixing the scheme’s deficit, “this might take years”.

Webb said the report is right to ask how BHS "got away" with telling trustees that a contributions schedule was non-negotiable.

The regulator should have been able to stop this, he said, and added that he hoped steps will be taken to make this easier in the future. 

However, he added, “hard cases make bad laws”, and BHS’s failure should not provoke broad changes to DB law.

Constant firefighting

Tom McPhail, head of retirement policy at consultancy Hargreaves Lansdown, said the BHS crisis reflected an endemic problem within the DB model: a tension between shareholders’ and members’ interests, further evidenced by the committee’s plans to examine the DB sector holistically in the future.

“It is a characteristic of the current marketplace to address crisis after crisis on an ad hoc basis, moving from one disaster to the next,” McPhail remarked.

He said that the BHS case highlighted that “it would be naive to think that there won't be more scheme failures in the future”, and a rise in gilt yields and employer strength should not be taken for granted.

McPhail said the question for the pensions industry now is whether “the demands of scheme members on the employer should take priority over the returns to shareholders”, and whether it is fair that employers should continue “pouring money into” DB schemes for former employees, at the cost of reducing contributions to younger employees in defined contribution schemes.

He added that while the new cabinet “won’t be short of advice if they go asking for it”, there is a worry the economic agenda will take precedence over pensions issues.

He expressed concern about the possibility that if the economy contracts, stimuli for high street spending might be introduced at the expense of pensions policy and retirement provisions, despite the publicity the BHS case has generated around pensions.