HCB NewsOpinion

Pension Scheme – at the heart of BHS woes

An article on the BBC News website about the BHS pension scheme “Pension scheme at heart of BHS woes” states amongst other things that only 851 of the current 11,000 BHS employees are members of the Pension Scheme. There are, apparently, 12,837 ex-employees below the age of 60 (BHS scheme retirement age) and 6,774 members taking retirement benefits. Whilst the majority of members receiving benefit are over 60 this number does include those that received ill-health early retirement benefits or spouses of members.

What is the problem with the (BHS) pension?

BHSLogo.svgThere is a £571m hole – or deficit – in the BHS pension. This is far bigger than the scheme’s assets. The potential of taking on such a burden may be one of the reasons that BHS has failed to find backers or buyers for the business at a whole.

The final-salary scheme was closed seven years ago. That means contributions could no longer be paid. Fewer than one in 10 current members of staff were in this scheme.

Over the years 20,462 people – past and present staff – have paid in to these pension schemes, according to the latest data.

They received a letter at the start of March, from the scheme’s trustees, telling them that the process of entering the PPF was underway.

“The Trustees very much regret that it has not been possible to find a long-term funding solution for the scheme,” the letter said.

News of BHS entering administration suggests that any last chance of the pension deficit being bought, along with the company as a whole, has disappeared

Source: Pension scheme at heart of BHS woes:  Kevin Peachey Personal finance reporter BBC News 25 April 2016

What do we think about ill-health early retirees (IHER)?

This group can cost a pension scheme a lot of money. Not only does the pension have to be paid for longer, there will also have been fewer years of contributions. It is worth looking at how many of the Trustees’ decisions accepting the request for ill-health early retirement would stand up to scrutiny in 2016 and in the current circumstance.  In the good old days, when pension schemes were more than adequately funded, the IHER route was much more palatable than dismissing an employee on capability grounds.  Frequently only basic medical evidence was collected, perhaps a brief statement from the member’s GP, and Trustees granted the request because there was minimal effect on the reserves, it was the ‘right’ thing to do and because it kept management happy.  But now we can see that this desultory approach to spending pension scheme funds can have unforeseen and rather dire consequences.

What now for the BHS pension scheme trustees?

What should be done now in respect of the BHS ill-health early retirement pensions?  The Administrators could arrange for the Trustees to review all of the IHER in payment, collecting a modern Statement of Current Health and circumstances.  Indeed nurses could be used to conduct telephone interviews in a supportive and non-threatening manner.  In our experience more than 12% of those members in receipt of a pension would not qualify if judged against objective assessment criteria, indeed many will be in alternative occupations.  Medicine advancements mean that those previously found to be unable to work would be now be judged fit, even under the most generous of rules.

Certainly a process which evaluates all medical evidence and which provides a plain English report with clear conclusion, a report that allows Trustees to make their decision confidently and fairly, is vital.

This applies not only to the BHS Scheme but to all Defined Benefit Schemes.  Trustees have to recognise that the decisions they take today could adversely affect remaining members in the future.  Members of the BHS Pension Scheme now face a period of uncertainty and they will most certainly see a reduction on their pension expectations as the scheme enters the Pension Protection Fund.  There are still, happily, many Final Salary pension schemes.  Some are closed to new members and many are closed to future accrual but all are exposed to the costs of IHER.

The only fair and equitable remedy is to have a robust assessment process in place.

What we can do

Health Claims Bureau experts have more than 40 years of experience of managing disability claims, and have been delivering professional, objective assessments of IHER applications for the past 10 years. Our objective assessments mean that some applications are denied, even if they may be valid later on with disease or illness progression – our pride, however is in our report detail, as none of our decline decisions have ever been challenged or  questioned, either by Trustees or Applicants.

Trustees can have a no-strings discussion with one of our experts by calling 01235 519924, or submit a query at enquiries@hcbgroup.co.uk.