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U.K. Pensions Regulator reaches deal with BHS to preserve pension benefits

BHS this store is now closed

The Pensions Regulator has reached a £363 million ($450 million) cash settlement with the former owner of retailer BHS, an arrangement that will provide funding for a new independent pension fund.

TPR said in a statement on its website Tuesday that it had reached arrangement with Sir Philip Green, and has the support of the trustees of BHS' two existing pension funds, both based in London: the £421 million BHS Pension Scheme and the £95.1 million BHS Senior Management Pension Scheme. The funds had a total £571 million deficit when the sponsoring employer went into administration last year.

The new pension fund will give participants the same starting pension provision as they were originally promised by BHS, and higher benefits than they would have received under the U.K.'s lifeboat fund for insolvent company pension funds, the Pension Protection Fund, London.

The deal closes TPR's enforcement action against Mr. Green and brings certainty to 19,000 participants of the existing pension funds.

The new pension fund will have a board made up of three professional, independent trustees. Current participants will have three potential options, including transferring to the new pension fund, which will be a fully independent trust overseen by independent trustees. It will be required to pay the PPF levy, as other defined benefit funds in the U.K. that might need to call on the lifeboat for help in the future.

Another option is to take a lump-sum payment, available to those participants with smaller accounts of up to £18,000 in total value. The third potential option is to remain in the current pension fund and receive benefits from the PPF.

The £363 million is being held in segregated bank accounts, TPR's statement said. Of the total, £343 million has been put into an escrow account to fund the new pension fund. The remaining up to £20 million is held in other accounts to cover expenses and the cost of implementing the participant options, and of the new pension fund. TPR said in a separate document that setting up the new pension fund is expected to take a number of months.

“The agreement we have reached with Sir Philip Green represents a strong outcome for the members of the BHS pension schemes,” said Lesley Titcomb, CEO at TPR, in the statement. “It takes account of the interests of both pensioners and the PPF, and brings a welcome level of certainty to present and future pensioners.”

Participant communication will be a priority, with TPR continuing to monitor the existing pension funds to ensure participants are kept up-to-date on progress.

The agreement follows the issuance of warning notices in November, outlining its TPR's plans to instigate regulatory action as a result of its anti-avoidance investigation regarding the BHS pension funds. The pension funds entered the PPF assessment period in March, and sponsoring employer BHS went into administration in April. TPR launched its anti-avoidance investigation in March 2015.