Former BHS owner Sir Philip Green has a “moral duty” to repair the firm’s £571m pensions deficit, according to a damning Government report on the retailer’s collapse.
A joint report from the Work and Pensions and Business, Innovation and Skills Committees says Green must to act now to help the BHS pensioners.
It adds this will “undoubtedly require him to make a large financial contribution”.
It says: “He has a moral duty to act, a duty which he acknowledges. We still do not doubt that Sir Philip has heartfelt affection for BHS. To an extent it created him; it could also bring him down.”
The report adds: “Sir Philip’s failure until now to resolve the pension fund’s problems contributed substantially to the demise of BHS, along with chronic under-investment and the systematic extraction of hundreds of millions of pounds from the increasingly ailing company.”
The document says when Green bought BHS the firm’s pension schemes had a surplus.
However, under Green’s watch these slid into “substantial and unsustainable deficit”, with Green and his board ignoring trustees’ demands for higher contributions.
The report says: “Such contributions were not charitable donations: they were the means of the employer meeting its obligations for deferred pay.
“We reject any assertion that Sir Philip was not aware of the growth of the deficit: he had a responsibility to be aware and he was aware. That there is a massive deficit is ultimately Sir Philip Green’s responsibility.”
The scheme says the 23-year recovery period for the pension scheme was “extraordinary”.
It says: “The annual payments of £10m, which were calculated with no apparent regard to the sustainability of the scheme, were presented to the trustees as a non-negotiable offer. The payments were wholly inadequate and the deficit continued to grow.”
BHS directors drew up a plan, ‘Project Thor’, to save the BHS pension schemes.
But MPs say the board then interrupted the running of the plan without good reason.
The report says: “The Arcadia board cited a variety of explanations for pausing Project Thor, ranging from Christmas to the Scottish independence referendum and instability in Ukraine.
“In fact, the primary reason was Sir Philip Green’s resistance to The Pension Regulator’s moral hazard requests. He did not wish to respond to requests for information regarding historic dividends, management charges, sale and leaseback arrangements, inter-company loans and the use of BHS shares or assets as collateral for company purchases. At best this demonstrated a lack of willingness to act to secure the pension fund’s future.”
Royal London director of policy Steve Webb says: “Whether Sir Philip Green has a legal duty to top up the BHS pension scheme will be decided by The Pensions Regulator. But this report shows that he has a clear moral duty to do so.
“The very BHS workers whose efforts produced the profits for BHS’s owners in the good years are the same people whose pensions are now at risk of being cut. Sir Philip Green has no excuse for being so apparently unaware of his responsibilities towards the company pension scheme and it is now time for action to deal with the problem.”
Hargreaves Lansdown head of retirement policy Tom McPhail says: “The report is a comprehensive and damning analysis of what went wrong at BHS. Almost no one emerges from the affair untainted.
“The report exposes the tensions between shareholder and pension scheme member interests, and poses some important questions about how we manage these tensions for the thousands of other schemes which continue to operate under the shadow of substantial deficits.”
McPhail adds the future holds “significant threats” for pension schemes.
He says: “The possibility of an economic slowdown and increasing inflation could exacerbate an already unsustainable mismatch between the promises made to some scheme members and the ability of sponsoring employers ever to pay for those promises.
“There is an urgent need to take a step back and look at how best to meet the competing demands of all the parties involved. This should be an urgent priority for the new Pensions Minister.”
Green’s knighthood is reported to be under review.