In the latest update, we look at the Arcadia administration and what this may mean for its DB pension schemes, some key DB scheme statistics from the PPF’s latest Purple Book, the Pensions Minister’s confirmation that the Walker v Innospec ruling will continue post-Brexit and the appointment of Caroline Rookes as permanent chair of The Pensions Ombudsman.
Arcadia's two DB pension schemes expected to enter PPF assessment period following Arcadia Group Limited's administration
The appointment of administrators to the Arcadia group of companies (Arcadia) on 30 November 2020 means that the two Arcadia defined benefit (DB) pension schemes are expected to enter a Pension Protection Fund (PPF) assessment period. This would closely follow the entry of the Debenhams' DB schemes into PPF assessment back in April.
The trustees' confirms that they will continue to work with the Pensions Regulator (the Regulator), the PPF and Deloitte, the appointed administrators, to "ensure the best return possible is achieved from asset sales and to make sure the Schemes' entry to PPF assessment is as seamless as possible". The PPF has also assured Arcadia scheme members of its 'ongoing protection'.
It has subsequently emerged that the Pension SuperFund is in contact with the scheme trustees and discussions have been taking place about Arcadia’s 9,500 pensioners transferring to it. Whether this comes to pass remains to be seen, but the Pension SuperFund is of the view that it would be able to provide higher benefits than the PPF.
The Arcadia collapse is perhaps the highest profile of recent pandemic related insolvencies, especially in a pensions context. The schemes may once again enter a PPF assessment period having only exited PPF assessment back in October 2019, following Arcadia entering into company voluntary arrangements (CVA). As part of the CVA plans, Arcadia agreed to provide an additional £210m of security to the schemes and Lady Green, Arcadia's main shareholder, agreed to pay £100m into the schemes in three instalments, of which £50m remains payable in September 2021. It has been confirmed that Lady Green will now bring forward the payment of the last instalment and will pay it imminently.
Stephen Timms, Chair of the Work and Pensions Committee, has contacted the Regulator enquiring about the status of this additional funding and has called for the Green family to 'do the right thing'.
The Arcadia schemes represent a potentially significant claim on the PPF although the PPF does plan for the likelihood of this type of larger individual claim arising. The PPF's 2019/20 report & accounts note that, allowing for expected claims over the next year or so, it is still likely to remain 'comfortably' above 100% funded, However, it would only take a small number of very large claims to have a significant impact on the reserves.
PPF Purple Book 2020 reveals drop in the number of DB schemes & DB funding levels
The PPF's Purple Book 2020, which provides data on the DB pension scheme 'universe', reveals that in the year to 31 March 2020:
- Number of schemes: there were an estimated 5,327 PPF eligible schemes falling slightly from 5,436 in the previous reporting period.
- Funding levels: aggregate funding levels dropped from 99.2% to 94.9%. The net funding position on a section 179 basis worsened from a deficit of £12.7 billion the previous year to a deficit of £90.7 billion. The decrease in the aggregate funding ratio was largely a result of lower gilt yields driving up liability values by more than the corresponding increase in asset value, together with decreases in equity values.
- Asset allocation: the aggregate proportion of schemes' assets invested in equities reduced from 24% to 20.4%, with the proportion of bonds increasing from 62.8% to 69.2% demonstrating a continued move away from equities towards de-risking.
- Scheme status: the number of open schemes remained the same at 11%. 46% were closed to all benefit accrual, an increase of 2% from the previous year.
- Scheme members: there were 9.9 million DB scheme members (10.1 million last year); 43% were pensioners, 46% deferred and 11% actives.
- PPF entry: There was an increase in the number of schemes entering the PPF from 26 the previous year to 41 but with the total value of claims decreasing to £0.5 billion from the record £1.9 billion value claimed in the year to 31 March 2019, when there was a significant claim from the Kodak Pension Plan No. 2.
It is not surprising that the overall funding position of DB schemes has worsened given the end of the reporting period captured the early part of the pandemic. There is also a continued trend towards de-risking and it is expected that this will only persist. Funding positions will also have moved since the effective date of the data, quite what these will be at the end of the next reporting period remains to be seen.
Pensions Minister confirms Walker v Innospec decision on survivor benefits of same-sex partners will stand post Brexit
The Pensions Minister has confirmed that the Supreme Court's ruling in the Walker v Innospec case will continue to apply after the Brexit transition period ends.
In Walker v Innospec the Supreme Court confirmed that same-sex partners are entitled to equal survivor pension benefits based on a member’s full period of pensionable service. This meant that pension schemes which had calculated such benefits based on the statutory minimum and restricted benefits to pensionable service accrued after 5 December 2005, had to amend the position to reflect the outcome of the case and make back-payments where relevant.
Following the case, concerns were raised as to whether the judgment would continue to have effect after the UK exits the EU. The Pensions Minister has now confirmed that the Supreme Court's decision will continue to be binding but, to avoid confusion, the Government plans to legislate to disapply the exemption in the Equality Act 2010 which permits same-sex survivor benefits to be restricted.
Most schemes will have reviewed the position of same-sex partners following the Walker judgment and no further action should be required as a result of the Pensions Minister's confirmation. However, this may not signal the end entirely. Relevant public sector schemes await a consultation exercise on amendments that may be needed to rectify potential discrimination that has arisen from the implementation of the Walker case, and which has resulted in certain widowers of female scheme members being paid lower survivor benefits than comparable same-sex survivors.
DWP confirms appointment of Caroline Rookes as the new chair of the Pensions Ombudsman
The Department for Work & Pensions (DWP) has announced the appointment of Caroline Rookes as the new permanent chair of The Pensions Ombudsman as from 1 December 2020, after acting as interim chair since September 2019.
Ms Rookes has significant experience in pensions. She was Director of Savings Pensions and Share Schemes at HMRC between 2002 and 2005, Director of Private Pensions at the DWP between 2005 and 2013, CEO of the Money Advice Service until 2017 and led the independent review into the communications and support provided to British Steel Pension Scheme members.
The appointment will last for five years and will involve implementation of the recommendations of the Tailored Review, the triennial review into The Pensions Ombudsman as an organisation.