From Ros Altmann:economist and pensions,
    investment and retirement policy expert

  • pensionsandsavings.com

    Well done to the PPF for standing up to Toys’R’Us and getting a good compromise

    Well done to the PPF for standing up to Toys’R’Us and getting a good compromise

    • Well done to the PPF – more money for the pension scheme and many jobs reprieved
    • PPF Toys’R’Us tactics have sent strong signal to other scheme sponsors to take pension promises more seriously

    It is good to see the Pension Protection Fund challenging corporate sponsors at Toys’R’Us and managing to get more money into the pension scheme. Its judgment that the company could indeed afford to pay, despite its protestations that this was impossible, has proven correct.

    This has sent a strong signal to other pension scheme sponsors that they must take their pension promises seriously and not ignore their pension deficits.

    The PPF is underwritten by all other pension schemes, not the Government, as a mutual insurance scheme against insolvency. If employers try to walk away from an underfunded scheme, they pass the costs onto other employers, which should only happen when there is no alternative.

    It seems that lessons have been learnt from the BHS debacle. Before its insolvency, BHS also restructured its business, but only to fall into bankruptcy a while later. By delaying the failure, the cost to the PPF was higher. The Lifeboat’s managers had to make the difficult decision in the Toys’R’Us case to force the company to come up with money for the pension scheme.

    Clearly, the owners would benefit from the CVA restructuring, so it is only right that the PPF guards against gaming the system and forces the company to allocate some funds to reduce the pension scheme’s deficit.

    The PPF originally wanted an extra £9m which the company said it did not have. However, after frantic late night negotiations, it has now agreed to pay £9.8m, with £3.8m in 2018 and a further £6m in 2019. In addition, the company has agreed to fill its deficit within 10 years, down from a much longer recovery period previously. The total deficit was last estimated as around £30m (although if annuities had to be bought that figure could be over £90m).

    This is good news for all other pension schemes and sends a warning signal to sponsors that they must consider the pension deficit properly if they want to carry out a restructuring.

    Unfortunately, the CVA means around a quarter of Toys’R’Us 32,000 staff will be made redundant. However, the remainder of the jobs will be saved. The US parent is in Chapter 11 protection, with debts of over £5billion and there are still some questions about the financial transactions of the company in the past period. The write-off of over £500m in inter-company loans, the massive increase in salaries for top executives and the failure to inform the Pensions Regulator and trustees may all be looked at.

    But for now, at least the company can keep going after its restructuring and the Toys’R’Us stores can continue to delight more children in 2018.

    It’s really good to see that our pension protection system is making progress in forcing reluctant sponsors to take their pension obligations more seriously. These are not just ordinary corporate liabilities – they have people’s lives attached. And thousands of workers will retain their pension membership and enjoy a better Christmas. Nice to have a good news pension story for a change.

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