The great pension scandal
The great pension scandal
I happened to be chatting to my father in law about Sir Philip Green the other day when I discovered that the subject aroused negative feelings in the man.
October 6, 2016

By Ross Martin, Accountancy Director at Hive Business.

I happened to be chatting to my father in law about Sir Philip Green the other day when I discovered that the subject aroused negative feelings in the man. Perhaps negative is putting it too mildly. It was something stronger, somewhere between hate and disgust.

It seems strange for a sober and intelligent man to harbour such intense feelings for someone he has never met, but he’s in the company of many other intelligent (if not sober) people in Fleet Street and Parliament. You used to be able to trust what your boss told you, the meme goes, but Green drew a line in the sand with his fat, perma-tanned hand and made it as clear as day that you and your generation were idiots for ever trusting a word that him and his kind ever said.

Don’t hate me, but I’m going to highlight some inconvenient truths in this narrative that matter to me, you and everyone who lives and works (and hopes to receive a pension) in this country. Firstly, and I’m sorry this is so boring: even though Sir Philip Green might seem abhorrent to look at in the newspaper and might even appear to be another one of those bloodsucking vampire squids, I’m afraid to tell you that he was actually following the pension rules.

With final salary pensions — and BHS was no different — the promise to pay employees a certain amount of money on retirement usually relies on funds being put aside for them. But, crucially, it also relies on the expectation that a certain return is obtained from those funds. That return doesn’t happen by magic and nowhere in the small print will you find a guarantee that it is coming. For many years, however, pension funds seemed to deliver and so it seemed safe to assume this would continue. Sound familiar?

So, there you are managing thousands of pensions for BHS, and you notice that no extra money is coming back from all those investments you’ve been making with all that hard earned cash from your employees. You have signed legally binding contracts with all these toilers to deliver final salary pensions. What do you do? You do the only thing you can do to make that happen. You ask for more funds to fill the gap. Obviously, as we are all now acutely aware, there are no more funds.

So the 88-year-old chain vanishes with the loss of 11,000 jobs and a £571m black hole in its pension fund, putting the pensions of 22,000 staff at risk. Cue the press witchhunt and the animated father in law. My second inconvenient truth, however — and this one isn’t so boring — is that the real target of hate here should be the Bank of England. Because from 2008 to 2009 something strange happened; interest rates dropped from five per cent to 0.5 per cent in the space of 12 months. It affected all final salary pension funds across the UK.

Sir Philip Green took his last dividend in 2004. Which means that BHS’s mega pension deficit wasn’t down to his greed but the Bank of England’s policy on interest rates. And the good news? There isn’t any. In fact, if you thought BHS was a catastrophe, consider the public sector, which utilises something called unfunded pension schemes. Have a nice ring to them don’t they? It’s said that they represent a commitment of more than £1tn (equivalent to 1,751 BHSs) but that that’s OK because they are underwritten by the government. Oh dear.

Ross

Get in touch on 01872 300232 or email us at hello@hivebusiness.co.uk.

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By Ross Martin Group Chairman
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