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Retailer’s restructuring plan satisfies UK pension lifeboat fund

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The Pension Protection Fund (PPF) has struck a deal with the UK division of retailer Toys R Us to protect its pension scheme while preventing the company from falling into administration.

The UK lifeboat fund had been poised to vote against a restructuring proposal at a creditors’ meeting yesterday, but before the vote took place the company made concessions to satisfy the PPF.

The company agreed to pay £9.8m (€11.1m) into the pension plan: £3.8m upfront in 2018, and a further £6m promised during 2019 and 2020.

The deal has also shortened the pension deficit recovery plan to 10 years, and Toys R Us has undertaken to seek additional support from its US parent company for the pension scheme.

The trustees were also given greater powers if any of the above commitments were not met.

Malcolm Weir, director of restructuring and insolvency at the PPF, said: “This offer goes a long way to addressing the PPF’s concerns and, in de-risking the pension scheme, offering greater protection for the current and retired members in the pension scheme.”

The PPF took over the pension creditor rights earlier this month when the company first lodged a Company Voluntary Arrangement (CVA), as the restructuring proposals are formally called.

Earlier this week it had said it “felt compelled” to vote against the CVA proposals despite its engagement with the company.

In a letter to the chair of the parliamentary Work and Pensions Committee, PPF chief executive Alan Rubenstein had added: “The challenges faced by the company, with its US parent in Chapter 11 bankruptcy and the current position of the UK high street, are not of the pension scheme’s making.”

“The role of the PPF is to protect the pension scheme members and to reduce the potential costs to other employers who sponsor defined benefit schemes in the UK,” he noted. “We continue to engage with the company to strive to ensure an outcome in the best interests of our members and levy-payers.”

The Toys R Us Pension & Life Assurance Scheme has around 600 members, a PPF deficit of around £30m and a buy-out deficit of approximately £93m, according to information in Rubenstein’s letter.

Commenting on the last-minute agreement reached yesterday, Graham Barker, chair of the trustees, and Tom Lukic, director with Dalriada Trustees Limited, professional trustee to the scheme, said: “While the trustee board very much appreciates the impact of the CVA on a number of employees and stores, we are pleased that agreement has been reached for the PPF to vote for the CVA.” 

New PPF levy

The PPF this week published its final levy rules for 2018-19. The levy estimate is £550m, just over 10% lower than the levy estimate for 2017-18 (£615m).

David Taylor, executive director and general counsel at the PPF, said: “The levy we receive continues to play a vital role in our funding strategy. Despite significant risks, we’re on track to meet our long-term funding target which means we can set the levy at this level.”

The country’s pension fund association said the £550m levy was the lowest ever, and that two-thirds of schemes would pay a lower levy.

“We are also pleased to see that SMEs will see both a 30% reduction in bills and a simplified process for certifying Deficit Reduction Contributions,” said Caroline Escott, investment and defined benefit policy lead at the Pensions and Lifetime Savings Association.

The PPF also updated its own insolvency model to make use of credit ratings where available, or a specific credit model for financial institutions, to assess insolvency risk. 

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