We have all read in the press recently about the demise of BHS, but the most worrying part of the story is how this will impact UK taxpayers and BHS pensions.
UK taxpayers will have to cover the statutory redundancy pay of the company’s 11,000 staff. Based on previous failures, such as Comet, City experts believe the bill will top £40million.
At the same time, every worker in the UK who is a member of a company pension scheme will have to help fill a black hole estimated at £571million in the BHS pension scheme. This is because the Pension Protection Fund, which steps in when businesses collapse, gets its money through a levy imposed on all company schemes.
Labour MP John Mann, who is a member of the Commons Treasury Select Committee, said: ‘Sir Philip Green and his family have made millions out of BHS and its hard-working staff.
‘He took over a company with a healthy pension pot, yet when he sold BHS a black hole had appeared in its fund.’
The Guardian has calculated that Green and his family collected £586m in dividends, rental payments and interest on loans during their 15-year ownership of the retailer.
What is the Pension Protection Fund you may ask and what does it do?
The Pension Protection Fund was established to pay compensation to members of eligible defined benefit pension schemes, when there is a qualifying insolvency event in relation to the employer and where there are insufficient assets in the pension scheme to cover Pension Protection Fund levels of compensation.
What does it offer:
1) If you were retired and over the scheme’s normal retirement age when your employer went bust, and receiving your pension then the Pension Protection Fund will generally pay 100% level of compensation.
2) If you retired early (except through ill-health) and had not reached your scheme’s normal pension age when your employer went bust, then you will generally receive 90% level of compensation based on what your pension was worth at the time. The annual compensation you will receive is capped at a certain level. The cap at age 65 is, from 1 April 2016, £37,420.42 (this equates to £33,678.38 when the 90 per cent level is applied) per year.
3) When you reach your scheme's normal retirement age, we will pay you compensation based on the 90% level subject to a cap, as described above.
With all of the above, payments relating to pensionable service from 5 April 1997 will then rise in line with inflation each year, subject to a maximum of 2.5% a year. Payments relating to service before that date will not increase.
What it doesn’t offer:
Flexible drawdown, self-management, the ability to transfer.
For all of you that are members of a Company Pension scheme, if you haven’t done so already, it is time to find out if the pension scheme is fully funded, that means it has enough money to cover its pension liabilities or if it is in deficit. If it is in deficit you need to know by how much, what the Company plans are to rectify this and most importantly how stable/safe is the company you work or used to work for. Is there a real possibility that company could fail? If so I would seriously consider transferring your pension out of the scheme if that is allowed.
Blacktower Financial Management (International) Ltd
Address: Edificio Mapro, Estrada Quinta do Lago, 8135-106 Almancil
T: 289 355685
E: info@blacktowerfm.com
Blacktower Financial Management (International) Ltd is licensed by the Gibraltar Financial Services Commission Licence 00805B
