We have been told for a number of years that people are increasingly shopping online and visiting our high streets less. There is much analysis on why this might be, not least because many people are now working longer hours (possibly as a result of fears about job security following the last recession), we have less free time and online retailers have made significant technical improvements such that it is simply easier for many to shop in this way.
Where once big high street department stores were the backbone to any new shopping centre in the country, resulting in attracting the smaller retailers and maintaining rents, the horizon is changing. Where some such businesses are starting to struggle, their connected pension schemes are starting to take centre stage, prompting an increased awareness of just how pivotal defined benefit pension schemes and their funding can be, particularly where so many people’s benefits are concerned.
Who are we talking about?
Debenhams, House of Fraser, Mothercare, Toys R Us, New Look and BHS, to name but a few, have either collapsed (or are or were at risk of collapsing) into administration in the last few years alone. This isn’t just because people are shopping online more, of course – clearly the uncertainty globally surrounding Brexit and our currency weakness hasn’t helped.
However, one of the main differences between online retailers and their more established high street peers is that, in most cases, the online retailers do not have large legacy defined benefit pension schemes to support. Such pension schemes are often the largest creditors of these high street retailers.
This week’s news…
The Arcadia Group (Topshop, Topman, Dorothy Perkins, Miss Selfridge, Wallis, Burton, Evans plus Warehouse and Oasis in selected stores) is facing its biggest challenge yet this week. The Group, which employs 22,000 people in the UK and Ireland, faces going into administration on Wednesday (delayed since last week) unless three-quarters of creditors agree to restructuring plans, which would still close many UK stores, slash rent for its landlords and cause hundreds of employees to lose their jobs. Many of the Group’s creditors are landlords, so it is by no means certain that the restructuring will be agreed, although Sir Philip Green has been busy since delaying last week’s vote attempting to improve the proposals to landlords, to improve the chances of their supporting the restructuring plans.
From media reports, the Group’s pension schemes (as is often the case) are the Group’s largest creditors. In the last few days, additional contributions and security have been offered to the schemes by the Group and the Green family to make the proposals more attractive to the schemes, in an effort to ensure that the Pension Protection Fund (PPF) and the Trustees of the schemes will now support the Group’s restructuring plans.
So what next?
If the proposed CVA (Company Voluntary Arrangement) is not agreed in respect of the Group on Wednesday, the retail empire could face falling into administration, as many of its predecessors have (which could result in even more job losses than is currently envisaged). What that might mean for its defined benefit pension schemes would depend on the funding levels of these schemes in comparison to what the PPF might otherwise provide, which can act as a lifeboat to defined benefit schemes in situations such as these.
Either way, whilst it will be a busy time for the Trustees of the Group’s pension schemes and there is still uncertainty for the thousands of its members, at least the future and funding of the Group’s pension schemes are rightly now firmly in the spotlight in relation to the discussions surrounding the future of the Group, not least because of the collapse of BHS and the impact on its pension scheme.
