The withdrawal of a plan to restructure the pension funds of UK retailer BHS left its trustees “very concerned” and made them question the sponsoring employer’s level of support for the underfunded schemes, MPs have heard.

Chris Martin, managing director of Independent Trustee Services and chairman of both BHS funds, said the proposed restructure of the scheme, called Project Thor, had been seen as offering a “better outcome” for the fund’s members.

Members would have been offered a lump-sum payment, the opportunity to transfer to a new scheme where benefits would be higher than those offered by the Pension Protection Fund (PPF) or the ability to remain in the current schemes and transfer into the PPF.

However, Project Thor was “paused” by Taveta Investments – parent of former sponsor Arcadia Group and therefore the ultimate parent company of BHS – in September 2014.

Asked by a member of the joint work and pensions/business, innovation and skills select committee hearing into the collapse of the retailer whether the suspension of discussions around a restructure amounted to a “bombshell”, Martin was frank.

“From the point at which the trustees first considered Thor and thought Thor represented a better outcome for our members than the PPF, we [had] been working to deliver it, so it was very, very disappointing when we first heard it was going to be paused,” he said.

The suspension, the committee was told, was initially intended to allow for a strategic review, as well as for results of Christmas trading in 2014 to be examined.

But Martin admitted that the postponement of the restructure was a matter of concern.

“At the time Project Thor was put on pause, I became very concerned about the corporate support for the scheme, given the message we had been delivered earlier in the process,” he said. 

He added that the fund de-risked its investment strategy in light of the postponement, as the trustees “had to behave as if we had no covenant”.

Funding ‘into the future’

The uncertainty seen during Martin’s tenure as chair of trustees contrasted with the relationship enjoyed by his predecessor, Margaret Downes, who retired in late 2013.

Asked about the 23-year recovery plan agreed between trustees and the sponsor in 2012, she recalled a meeting whereby it was made clear the sponsoring employer “was not prepared to give any more money than £10m (€12m) a year” towards deficit reduction.

Downes did add that the £10m a year upper limit came with a commitment to fund the £10m payment “into the future”, and that, at the time, no impression was given BHS would not continue to be a well-supported enterprise.

The hearing follows the collapse of BHS, which left its two pension funds with buyout deficits in excess of £570m.

Former sponsor Arcadia and the Pensions Regulator have argued over details of a 2015 sale to Retail Acquisitions, the pension scheme’s sponsor when BHS collapsed earlier this year.

Topics