It is old news that the BHS pension plan was allowed to rot under the ownership of Sir Philip Green.
But today, thanks to the report from the House of Commons inquiry into BHS, we finally have the details of how the retirement plan for 11,000 current employees and 20,000 current and future retirees went from having a £43 million surplus in 2000 to carrying a £345 million deficit in 2015, on Green’s watch:
This isn’t academic trivia, the report notes:
“[BHS’s] 11,000 employees face an uncertain future seeking work or facing unemployment. Its 20,000 current and future pensioners face substantial cuts to their entitlements.”
By contrast, the Green family received £307 million in dividends from BHS between 2002 and 2004, the report states.
The report gives details on how Green ignored the pension fund for years as it gradually — and then quickly — deteriorated. By 2015 the fund’s position became so bad that a plan proposed internally to Green would have taken 23 years to make the fund whole again. Green rejected that plan and decided to sell the company instead, offloading the failing pension plan onto the new buyer
Even that solution required a sleight of hand. “Sir Philip Green acted to conceal the true state of the BHS pension problem from RAL and its advisers” in order to make the sale go through, the report says.
As we now know, the buyer was Retail Acquisitions Limited (RAL), owned by Dominic Chappell — a thrice-bankrupt ex-racing driver with little experience of retail. “The sale was materially detrimental to the pension schemes. It came dressed with an informal assurance of a security which proved to be illusory as BHS collapsed. Arcadia [Green’s company] also held the simultaneous positions that BHS was both a solvent business and in urgent need of a pensions restructuring that had inevitable insolvency as a prerequisite,” the report states.
When Green first acquired the company for £200 million in 2000, all was well. But “BHS declined to make the employer contributions necessary to maintain the sustainability of the pension schemes over the duration of Sir Philip Green’s period in charge,” the report states.
The pension funds started to decline quickly in 2007 and 2008, when the financial crisis rocked the markets, and they never recovered.
Many pension plans have fallen into deficit as a result of the financial crisis, due to low interest rates and tough trading conditions. But the point is Green didn’t invest enough money to right the scheme even though he could afford to.
With a deficit of £166 in 2009, Green proposed a recovery plan that would contribute only £6.5 million per year to the plan. That number rose to £10 million per year in 2012, when the deficit reached £233 million.
It was after this point — with BHS’s business too feeble to sustain its pension funds — that Green decided to sell the business.
Green’s problem was that The Pensions Regulator (TPR) had, at this point, finally realised that the 23-year pension recovery plan was way too long and began investigating BHS. Inside BHS, Green proposed a restructuring, nicknamed Project Thor, that could have cut costs and provided more funds for the pensions. The problem with Thor was that it required government approval, the report states: “Project Thor required sign-off from TPR. The sale of BHS to RAL, and subsequent switching of direct sponsor responsibility for the pension schemes, did not.”
Green chose to sell the company rather than deal with the government.
But Green hid from RAL the true condition of the pensions, the report states. During RAL’s due diligence on BHS’s books, RAL was told “that TPR had ‘raised no particular concerns’ regarding the draft clearance application. That was simply not true. There was … ‘no supporting evidence, beyond the seller’s word’ that Thor had been acceptable to TPR and the trustees,” the report states. Green let Chappel and RAL believe that the Thor plan was going to happen, when Green knew it would not, the report says:
“Dominic Chappell and RAL were aware that the pension schemes were in heavy deficit when they bought BHS. They were not, however, fully aware of the prospects for the pension compromise on which their plans were reliant. Sir Philip Green acted to conceal the true state of the BHS pension problem from RAL and its advisers. He also encouraged RAL to believe that resolution of the schemes’ problems through restructuring was more imminent and more achievable than was the case.”
Although Green has promised to fix the BHS pension schemes, he has not actually done so, the report says: “He has also continued to express frustration with TPR, saying they were ‘trawling through bullshit from 10 years ago’ and that he wanted to ‘stop being tortured’ by them. TPR is, however, yet to receive a single detailed proposal for resolution or an adequate offer to the schemes.”
Green is now facing very loud calls from MPs to make good on his word and pay up. If he doesn’t make a contribution to the pension funds, the rest of us will be required to, the report states: “Their pension costs will now be met through levies paid by other pension schemes, including many attached to small companies.”
NOW WATCH: We tested an economic theory by trying to buy people’s lottery tickets for much more than they paid
NOW WATCH: Money & Markets videos
Business Insider Emails & Alerts
Site highlights each day to your inbox.