BHS 'could file for administration' threatening 11,000 jobs on Monday

antrobus

vivatifosi wrote: »

I'm struggling to copy the exact para,...

Struggle no more.

Payment of dividends by an employer is a normal business activity which can be consistent with both the employer’s sustainable growth plans and the trustees’ funding objective to pay benefits as they fall due. While an employer’s dividend policy might be significant for scheme trustees where the employer’s covenant is already constrained[37], it should not generally be a material concern where the employer covenant is already strong and will remain so after the proposed dividend has been paid. Significant trustee scrutiny of employer dividend policy would be disproportionate and unnecessary in the latter circumstances. Trustee scrutiny can be limited to those situations where the covenant strength is a concern, where the timing of proposed dividends is unusual or where exceptionally large dividends are proposed. This is because trustees will need to know if particular dividend payments will result in the covenant becoming weaker than that on which they have relied when taking their most recent scheme funding and investment decisions and be satisfied that the payments will not constrain the employer’s ability to support the scheme without the acceptance of excessive risk within it.

vivatifosi wrote: »

....If dividend was paid in 2003 that was before both of these codes of practice. Unsurprisingly, codes have got stricter over time, 2006 was quite a big change. Not sure of wording before then.

I think the issue would be that (according to the Telegraph anyway) the BHS pension fund continued to have a surplus until 2008, so that there would have been no concerns regarding the employer covenant prior to that date.

BHS was still profitable at that time as well; profits of £17.4m in 2008, £27.6m in 2007, on top of which they were booking actuarial gains. It was in 2009 that things turned ugly, trading losses, exceptional items, prior period adjustments, and a whacking great actuarial loss of £159m. In March 2008 BHS had net assets of £226m, in August 2009 it was only £30m.

Things did not improve afterwards; the latest available accounts for 2014 show net liabilities of £256m, including an (accounting) pension deficit of £111m. So basically BHS managed to burn up £482m between March 2008 and August 2014.

My presumption would be, that when BHS was sold for a £1 in March 2015, Taveta had to swallow a £250m odd loss to get it off its hands.

antrobus

vivatifosi wrote: »

I missed the bit about buy out basis. That's the most expensive way to value a scheme as you have to include the cost to transfer to an insurance co, about 20% more. In reality then, the deficit on tech provisions will be lower.

Yes, there are basically three different methods of valuing a pension fund; accounting. actuarial, and tits-up.

Andy_L

antrobus wrote: »

Yes, there are basically three different methods of valuing a pension fund; accounting. actuarial, and tits-up.

Is that last one official pension terminology (and how did you get it past the swear filter.)

vivatifosi

antrobus wrote: »

Yes, there are basically three different methods of valuing a pension fund; accounting. actuarial, and tits-up.

Aiui there are actually four, or perhaps 3a and 3b may be more appropriate as they are not that different. Accounting and actuarial technical provisions being first two. Then you have full buy out by an insurance co. That costs more but you no longer carry the risk or need a trustee board.

The PPF basis is similar to the latter, but capped under PPF. For example, there will probably be pensioners in the BHS scheme, unless the directors had a separate scheme, with large pension pots. The PPF caps this. Can't remember the actual number, iirc it is something like £35k pa, also the 90% on deferred. So the calc methodology is similar except people don't receive full benefits in all cases.

I'm wary of any headline numbers published in the press. The reality could be higher or lower, but almost certainly it is wrong.

I still can't get my head around why they had such a long repayment period though. While not disallowed, my understanding is that it is raising a red flag to the regulator. Maybe all large schemes are under a magnifying glass anyway, but a small scheme like ours goes to great lengths to stay the right side of the regulator.

vivatifosi

antrobus wrote: »

Struggle no more....


Things did not improve afterwards; the latest available accounts for 2014 show net liabilities of £256m, including an (accounting) pension deficit of £111m. So basically BHS managed to burn up £482m between March 2008 and August 2014.

Apologies for clumsy edit, thanks for quoting for me, I think that the wording is quite important.

Thanks also for figs. So am I correct in saying that the £111m is accountancy basis and that the 500m odd is actually on a buyout basis? That would explain a lot. Though the last year has been pretty pants in terms of returns.

I wonder how big the scheme is, relative to its deficits.

antrobus

vivatifosi wrote: »

...Thanks also for figs. So am I correct in saying that the £111m is accountancy basis and that the 500m odd is actually on a buyout basis? That would explain a lot. Though the last year has been pretty pants in terms of returns.....

I believe so, yes.

vivatifosi wrote: »

....I wonder how big the scheme is, relative to its deficits.

Here are the BHS Pension Fund Accounts for March 2015.
https://www.bhspensions.com/wp-content/uploads/2015/09/Bhs_-Audited-Accounts-31-03-2015.pdf

Net assets of £435m. That's one of them. There is also a BHS Senior Management Scheme. I found one source that quotes net asset figures for 2013 of £373.1m for the pension fund, and £94.9m for the Senior Management Scheme.

https://www.bhspensions.com/wp-content/uploads/2015/09/BHS-Pension-News_2014-.pdf

So I'd guess that the two of them put together must have something like £500-£550m of assets by now, depending on how much has tanked this year. Which is less than the quoted buy-out deficit. The BBC seems to confirm this.

There is a £571m hole - or deficit - in the BHS pension. This is far bigger than the scheme's assets.
http://www.bbc.co.uk/news/business-36128113

antrobus

vivatifosi wrote: »

Aiui there are actually four, or perhaps 3a and 3b may be more appropriate as they are not that different.....

I believe that to be correct. There are two different 'tits-up' methods that both give more or less the same answer.

vivatifosi wrote: »

... For example, there will probably be pensioners in the BHS scheme, unless the directors had a separate scheme, with large pension pots. ...

The directors do have a separate scheme. Much bigger pots.

vivatifosi wrote: »

...I'm wary of any headline numbers published in the press. The reality could be higher or lower, but almost certainly it is wrong....

One should be wary of anything published in the press.

vivatifosi

Interesting Mr bus. I wonder if the director scheme is fully funded...

Generali

vivatifosi wrote: »

Interesting Mr bus. I wonder if the director scheme is fully funded...

Well stone me, who'd have thought it:

http://www.ft.com/cms/s/0/d044fb10-e5e4-11e5-bc31-138df2ae9ee6.html#ixzz47CpvzayW

The assets of the main BHS defined benefit pension scheme, which was offered to most staff until it closed in 2009, are enough to cover about 60 per cent of its liabilities to members, according to the latest valuation conducted three years ago. In a typical year the scheme pays out about £2,800 for every pensioner.

A scheme offered to 200 or so senior managers, which is 80 per cent funded, is more generous. Payments fluctuate between £30,000 and £60,000, although in part this reflects one-off payments to members transferring out of the scheme.

It's stuff like this that makes me think the sans coulottes had a point. String 'em up first and ask questions later.

vivatifosi

Well who would have thought it... in 2015, when BHS was being sold, the pension scheme members were told that they couldn't go after the Greens:

https://www.bhspensions.com/wp-content/uploads/2015/09/BHSArcadiaUpdate.pdf

Quoting two bits, first:

HOW WELL FINANCED IS THE SCHEME?
4. The Trustees say the Scheme has a deficit; how much of a hole is there?
The most recent three-year valuation was undertaken as at March 2012; this showed that the Scheme’s assets were £210m less than the value of the benefits members had earned at March 2012.
5. What is the Scheme’s current deficit level?
We won’t know until we have the results of the March 2015 valuation later in the year. However a review undertaken as at March 2014 indicated that the Scheme’s funding level was much the same as it was at March 2012 in that assets were approximately £207m less than members’ benefits valued as at March 2014.
6. How is the deficit being paid down?
BHS’s finances are such that it has only been able to pay deficit reduction contributions of £9.5m a year since September 2013. The Trustees would have preferred to receive more than this, but they acknowledged that BHS could not afford to pay any extra.
When the results of the 2015 valuation are known, the Trustees will discuss new deficit contribution levels and recovery periods with the BHS management.

AND:

WHAT PROTECTIONS DO SCHEME MEMBERS HAVE?
8.
How secure are the Scheme’s assets?
The Scheme’s assets are held in the Trustees’ names and are totally separate from BHS’s assets.
9. What happens if BHS becomes insolvent, or goes into Administration?
Either one is likely to be a Qualifying Event to start the Assessment process for entry into the Pension Protection Fund.
10. Can the Trustees call upon Arcadia or Sir Philip Green for financial support?
No, BHS is the sponsor in relation to the Scheme and the Trustees have no recourse to the assets of the Arcadia Group or Sir Philip Green or his family.