08 Mar, 2016
BHS pension gap 'wider than thought'
Department store chain BHS's pension scheme liabilities may be bigger than previously thought, court documents have revealed. The precarious situation comes as the company tries to lower its rent bill with landlords in order to survive.
BHS is trying to secure what is known as a Company Voluntary Arrangement, a form of compromise with its creditors. Its pension scheme deficit stands at £207m, but it is understood the current working deficit is much higher. The 147-page document, filed last week, is a chilling realisation of current pension pots.
According to the documents, the scheme's buy-out valuation has now swollen to £571m. In other words, this would be the cost if an insurance company were to take over the pension liabilities, which would be an unlikely move.
BHS is already in discussions with the Pension Protection Fund (PPF), the government-supported rescue agency as well as the Pensions Regulator and the BHS pension trustees on addressing the deficit.
The PPF pays compensation to members of pension schemes when a company goes under and does not have enough assets to pay out to savers. BHS insists that it continues to meet its pension payment obligations.
However, in the proposal, BHS's directors are clearly hoping that the two pension schemes will be transferred into the PPF and that the company would have no further liability to fund it.
The chairman of the BHS Pension Trustees, Chris Martin, said that he did not think there was a future for the schemes outside the PPF, even if the business was successfully restructured. He also valued the combined pension scheme deficits at around £500m.
In the CVA documents, there is also a stark warning what will happen, should the CVA not get approved.
"It is very likely that BHS Limited will no longer be able to trade, which would result in the appointment of administrators," the company said. The documents reveal that BHS has been loss-making for seven consecutive years.
It was sold for a £1 a year ago by Sir Philip Green to Retail Acquisitions. He wrote off £215m of debts in the process. It has been reported that Sir Philip has been asked to make a multi-million-pound voluntary contribution to the cost of restructuring the pension scheme.
The new owners, Retail Acquisitions, are a little-known group of financiers. This has prompted lots of questions about the long-term survival of BHS and the future of its staff when the sale was announced.
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