UK roundup: TPR intervention, BHS report, British Airways [updated]
The UK pensions regulator has said it used the threat of its anti-avoidance powers to secure a better deal for members of a small private sector defined benefit (DB) scheme following the sale of the sponsoring business.
The Pensions Regulator (TPR) published a regulatory intervention report on the case of the sale of data management services provider Database Group, which it said would have led to “an insecure future” for the DB scheme of one of its trading companies.
This is a closed pension scheme with around 100 members that, as at 31 May 2015, had an estimated buyout funding deficit of £7.7m (€8.6m).
In 2015, an offer was made for Database Group on the condition that the company be sold without its DB pension scheme.
This formed the basis of an application for clearance submitted to TPR in July 2015.
Nicola Parish, executive director for front-line regulation at TPR, said being approached for clearance allowed TPR “to have a seat at discussions and ensure a better outcome for scheme members”.
The regulator opened an avoidance investigation because it had concerns about the risk of the offer effectively removing support from the scheme, although it “understood the commercial rationale and wider benefits of the Merkle acquisition”, according to Parish.
“This case demonstrates TPR will consider using anti-avoidance powers in respect of a smaller scheme where appropriate,” she said.
“It illustrates how the existence of these powers can act as a deterrent against possible avoidance activity.”
In other news, the UK government – via the department for business, energy and industrial strategy – has responded to a damning parliamentary report on the collapsed high street retailer BHS, whose two underfunded schemes were transferred to the PPF.
In a letter to the chairmen of the committees behind the joint investigation, business minister Margot James said the government was “determined to ensure the Pensions Regulator has the powers it needs to deter and tackle misbehaviour and that these address emerging threats and challenges”.
She added: “We are actively considering these issues, and, should we need to bring forward further legislation in light of all the evidence, then we will, of course, do so.”
She also said the government “shares your concern” about “the sharp contrast” between the impact of BHS’s collapse on workers and pensioners and payments received by senior executives at BHS and its successor owner Retail Acquisitions, and “apparent weaknesses in the corporate governance of the companies concerned”.
Responses to the BHS report from Retail Acquisitions and Taveta Investments, parent of former sponsor Arcadia Group and therefore the ultimate former parent company of BHS, were also released by the work and pensions committee, in addition to a counsel opinion.
Lastly, British Airways (BA) has agreed to pay deficit contributions of at least £300m a year into one of its staff pension funds to shrink the scheme’s funding shortfall, which has grown slightly since the previous three-yearly valuation to £2.8bn, according to International Airlines Group (IAG), BA’s owner.
The commitment to payments into the scheme is part of an agreement signed between BA and the trustees of the New Airways Pension Scheme regarding the latest valuation as of 31 March 2015.
The technical deficit of £2.8bn is wider than the £2.7bn shortfall calculated at the March 2013 valuation.
The fixed deficit contributions will be made every year until 2027, according to the deal, which IAG said gave BA the flexibility to make dividend payments.
The pact also capped the level of additional contributions the airline makes, based on its cash balance at 31 March in any year, at £150m a year.