Trustees of retail pension schemes will be reacting to last week’s news with consternation. Although, as with any employer failure, it serves as a very useful reminder of our responsibilities.
At Debenhams, 12,000 jobs are likely to be lost as hopes of last-ditch attempts to save the brand receded while a further 13,000 staff may lose their jobs at Arcadia.
If the Arcadia group enters administration, its pension scheme, with a reported £350m deficit, is likely to enter a PPF assessment period, resulting in a reduction in benefits for numerous members. This is tragic news for pension scheme members and employees, coupled with the sadness that many familiar brand names may no longer form a staple of the British high street scene.
It’s difficult for any retailer to forecast holiday success when lockdowns have been relaxed so close to Christmas. Indeed some brands are considering operating 24/7 in the pre-Christmas period in an attempt to catch up with losses incurred due to lockdown.
These recent announcements of retail failures could not have come at a worse time as there was further bad news this week for pension schemes and the PPF when Crown preference was reintroduced (read more about this here). This could impact upon retailers looking at a rescue via a CVA as monies owed to the Crown will now rank ahead of ordinary unsecured creditors, which invariably is where the pension scheme claim lies. It could also hamper businesses looking to secure finance from lenders hitherto willing to fund against floating charge assets such as stock, as HMRC will now rank ahead of floating charge holders. Availability of such secured funding has often been crucial in rescuing businesses in financial distress.
I feel like the Grinch as I write this, so I will pause here with the gloom and ask, “What can we do as trustees to help?”
Stay close to the covenant.
- seek and review monthly management information
- identify warning signs at an early stage
- get a seat at the table if things start to go wrong
What are we looking for right now?
The collapse of larger retailers has highlighted some of the warning signs of failure within this sector. For example, a retailer without an effective online offering is likely to quickly lag behind competitors. If trustees can track on-line sales growth against competitors’ performance this is a very helpful measure to be able to consider and discuss with management.
What do we need to keep an eye on longer-term?
Looking forward, the retail sector may of course never return to its pre-COVID times. Consumer spending habits may well have changed, possibly forever, and the government’s plan to end VAT-free shopping for international visitors at the end of the year could make matters even worse. It is estimated that about £3.5bn in tax-free sales are made to non-EU tourists each year, which represents another warning sign for trustees of schemes with a retail employer to consider.
What more can trustees do?
Finally, it is vital for trustees, at times of all employer distress, to consider communicating quickly and efficiently with members, not only to allay member concerns and uncertainty but also in an attempt to provide some comfort (such as a reminder of the existence of the PPF, which has issued its own detailed guidance to help trustees if they believe their scheme’s employer may be facing insolvency) at a time when it is most needed for members. This should help safeguard against the possibility of misinformation being spread, which could in itself lead to scams. In summary, many retailers have suffered significantly this year, emphasising the need for trustees dealing with retail employers to be extremely vigilant. In its guidance recently issued, the Regulator points out that some trustees will not always have the required experience to deal with distressed situations and recommends that trustees seek appropriate advice as soon as possible. 20-20 Trustees have significant experience in this area and can help schemes to find a solution that optimises the position for members.