Phillip Green and the BHS Pension Deficit


It wasn’t long ago that BHS, the department store from our childhood, went bust. Now, there’s another problem—a pension deficit. What this means is essentially BHS can’t afford to pay out the required pension to its former employees. Philip Green bought BHS in 2000 and since then his record of managing the business has been somewhat patchy to say the least. The pension deficit is just another thing to add to the seemingly never ending saga.

So, what does this mean in layman’s terms? Currently the pension deficit is £571 million, and what’s angering a lot of people is the fact that the Green family has brought in £586 million in dividends from rental payments and interest loans from their time running the company. As it stands, it’s unlikely that the Pensions Regulator is going to be able to demand the payment needed to provide former employees with what they would have got before the company collapsed, although the situation is quite fluid and seems to be changing on a daily basis. The Regulator is hoping to at least provide something better than what’s currently on the table.

The situation with BHS has raised a lot of difficult questions regarding pension deficits. When a company becomes insolvent and there’s a pension deficit, who covers this cost? In theory, the answer to this is the company, but the problem is that when a company is insolvent, the funds in its pension scheme aren’t automatically part of the assets of the company. Depending on the type of pension scheme the company has, either the company will be liable to pay or the legal entity that runs the pension scheme will be. Depending on what assets the company has, this could either be a good thing or a bad one.

Right now, BHS is attempting to right its deficit, stating that the pension fund’s board of trustees are working to find the money to give the employees a better offer than their current one but the unfortunate reality when it comes to insolvent companies is that usually they don’t have sufficient funds to make good any deficit, hence why they’re insolvent. Whilst there are certain safeguards in place, such as the Pensions Regulator (“TPR”) and the Pension Protection Fund (“PPF”), which guarantee minimum levels of compensation to members of schemes, employees are often left high and dry with seemingly nowhere to turn.  

The deadline for Pensions Regulator enforcement action is 1st March, which would trigger the next stage of The Pension Regulator's action. There’s also talk of The Serious Fraud Office getting involved and rumour has it that they are already conducting preliminary inquiries to consider whether to launch a formal investigation. Really though, only time will tell how Green and his team try to solve the issues. Our hope is that several lessons will have been learnt going forward and perhaps it will set some sort of precedent for the future of pensions in insolvency.

Kingsland Business Recovery are insolvency experts. For more information on pensions deficits in insolvency, please feel free to contact one of our directors on 0800 955 3595 for a no obligation, confidential chat. Or alternatively, drop us an email at info@kingslandbr.co.uk

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