Arcadia, the owner of fashion brands including Topshop and Topman, has fallen into administration, potentially putting 13,000 jobs at risk
Members of the company’s defined benefit (DB) pension scheme, which has an estimated £350 million deficit, face renewed uncertainty over whether or not they will enter the Pension Protection Fund (PPF).
If the scheme does enter the PPF, members could face 10% cut the value of their pensions.
Tom Selby, senior analyst at AJ Bell, comments: “Sir Philip Green once again finds himself in the headlines for all the wrong reasons as Arcadia, the owner of high-street brands including Topshop, Topman and Dorothy Perkins, reportedly stands on the brink of collapse.
“Green is facing calls from MPs on the influential Work and Pensions Committee to plug the estimated £350 million deficit facing the Arcadia DB scheme in the event the business goes to the wall.
“This would be on top of the £363 million the fashion mogul forked out in 2017 as part of a deal reached with the Pensions Regulator to help plug the deficit of the BHS scheme after he sold it the company to Dominic Chappell for £1 in 2015.
“There is, however, no guarantee that Green – or anyone else for that matter – will put their hands in their pockets to make good these pension promises.
“The good news for members is that, even if the Arcadia does enter administration and an injection of cash isn’t forthcoming, they will not lose everything.
“The Pension Protection Fund (PPF) acts as a lifeboat for members of defined benefit (DB) schemes whose sponsor fails, paying at least 90% of the value of pensions built up. In some cases, members would still get back 100% of their expected DB pension.”
How much does the PPF pay to scheme members?
The level of compensation you get from the PPF depends on your circumstances. If you have already retired and reached your scheme’s ‘normal pension age’ you should get 100% compensation, although you may lose some inflation protection.
If you have yet to retire or you took your pension early then your annual payment will usually be cut by 10%, though is also subject to a cap. From the 1 April 2020, the cap at age 65 has been set at £41,461.
As the cap is applied before your compensation is reduced to 90%, the actual amount someone would receive as a capped member retiring at 65 is £37,315.
So while falling into the PPF is far from ideal, the scheme provides a valuable insurance policy for DB members which must be taken into account.
You can find more information on the PPF and the compensation it provides at www.pensionprotectionfund.org.uk
Can members transfer out?
Once a scheme enters the PPF’s assessment period it is generally not possible to transfer out to an alternative plan.
What about defined contribution (DC) members?
Workers who have built up a DC pot while employed at Arcadia should not be affected if the company enter administration.
This is because DC pensions are not guaranteed by the firm you are working for, with responsibility for investing and managing the fund instead held by the individual.