The UK’s Pensions Regulator (TPR) has agreed an arrangement with Hoover to allow the household appliances company to offload its main pension scheme to the country’s lifeboat fund.
TPR confirmed this week that it had permitted a regulated apportionment arrangement (RAA) with the UK arm of Hoover as the funding needs of the scheme threatened to tip the company into bankruptcy.
A spokesman for the regulator said: “We granted clearance for an RAA proposal regarding the Hoover (1987) Pension Scheme in late April. RAAs are rare and we will only grant them if stringent criteria have been met.”
Provided no appeal against the RAA is filed, the scheme will enter the Pension Protection Fund’s (PPF) assessment period, with the expectation that it will transfer into the lifeboat fund without Hoover being declared insolvent. Members who have not retired will have their benefits cut by 10%.
The scheme’s trustees said they were “very disappointed” that no long-term funding plan had been reached, but had “reluctantly” agreed to the RAA.
A spokesperson for the Hoover pension trustees said in a statement: “Throughout this process, the trustees have worked tirelessly to represent the best interests of all members, drawing on the best legal, actuarial, and financial advice. This outcome is particularly distressing since the trustees’ investment strategy has returned very positive and consistent returns, particularly in the last five years.
“With regret, the trustees have decided to support these proposals as they provide a significantly better outcome for the pension scheme than it would have received through the normal insolvency process, and the best achievable solution for the pension scheme under the circumstances.”
According to Hoover Limited’s most recent published accounts – covering the 18 months to the end of June 2015 – the scheme was only 63% funded, with assets of £335.6m (€385.7m) but nearly £530m of liabilities.
Following an actuarial valuation in 2013, the trustees requested annual deficit reduction payments of £5m, according to the accounts. However, by the time the company’s books were signed off in April 2016 no agreement had been made.
During the 18 months covered by the accounts, Hoover Limited made a loss of £6.2m. Costs arising from remeasurements of pension liabilities were nearly three times this amount, the accounts indicated.
In the first few months of 2016, the directors said, weakness in sterling had increased costs. This problem is only likely to have worsened following the UK’s EU membership referendum and the subsequent fall in sterling against the euro and US dollar.
RAA deals have also been agreed in full or in principle with schemes backed by engineering firm Halcrow and manufacturing group Tata Steel UK. However, in these circumstances the arrangement has involved the creation of a new scheme to continue operating outside of the PPF.
A PPF spokesperson confirmed the the scheme would enter its assessment process, adding: “Members can be reassured we are there to protect them.”
Hoover also sponsors three much smaller defined benefit pension schemes, two of which are in deficit.
A previous version of this story incorrectly stated that the BHS pension scheme had participated in an RAA. This was not the case.